Lessons from the Industrial Policy Era in the United States: The Ambitions and Failure of Rhode Island’s Greenhouse Compact
Stephen Ferruolo
Dean and Professor of Law - School of Law - University of San Diego - California - USA
Abstract
This paper addresses the first of the conference themes, the constitutional and legislative challenges to motivate and encourage investment, and specifically the role and limits of state economic policies in development plans on investment promotion. It does so by looking back to the heyday of industrial policy (IP) in the United States in the early 1980s, when a broad range of proposed economic reforms emerged as a unified political progam intended to address what proponents described as the nation’s long-term economic decline. IP arose out of the growing concerns of liberal economists like Lester Thurow and Robert Reich of the consequences of national economic stagnation, increased global competition and declining domestic productivity and investment, especially the disinvestment in manufacturing in traditional smokestack industries (deindustrialization). While IP became a major topic in national political debates, especially leading up to the 1984 presidential election, there were also major IP initiatives in several states, the most notable and comprehensive being the IP proposal developed in Rhode Island (which is the smallest state geographically, but which had once been the most highly industriaized of all 50 states) known as the Greenhouse Compact, after one aspect of the plan, recommending funding four “research greenhouses.” Developed over a 12-month period (October 1982 to October 1983) by a 19 member Strategic Development Commission (SDC) appointed by the state’s governor, the Greenhouse Compact was a complex and detailed economic development plan with a $750M price tag ($250M of which was to be borne by the state’s taxpayers) designed to decrease unemployment by creating 60,000 new jobs and to raise average wages to close to the national level within seven years, thereby reversing nearly 40 years of economic decline. The full report, which was comprised of nearly 1000 pages and made 70 recommendations, was the work of a team of 70, led by a consulting group headed by Ira Magaziner (better known for later leading along with Hillary Clinton the Task Force to Reform Heath Care that failed so dismally in the early Clinton administration). The report’s recommendations covered five broad areas: (1) investments in existing and new industries; (2) tax incentives to encourage entrepreneurship; (3) investments in higher education and academic research; (4) making changes to the unfavorable business climate through legal and regulatory reforms and infrastructure improvements; and (5) the financial aspects of the plan. Recently, the Greenhouse Compact has been praised as “the last, best effort by an American state to approach economic development with a coherent, all-encompassing strategy” (Metz 2107). By examining the recommendations (and the relative financial commitments tied to them), this paper questions just how coherent and strategic the plan was. It also asks what lessons about the role and limits of state economic policies and planning can be learned from the defeat of the Greenhouse Compact. Although approved by state legislature by substantial margins and supported by a broad bipartisan collation of businesss and labor including the AFL-CIO, the proposal went down to overwhelming defeat in a special referndum in June 1984, losing by a four to one margin.
Keywords
economic policies, development plans, investment promotion, global competition, domestic productivity.
