The fundamental challenge in this recession is that the growth that preceded it was a mirage. Bubble era borrowing created a network of financial jobs, real estate jobs and construction jobs that collapsed with the end of the bubble. Many of those jobs will never return.
An extremely high proportion (75%) of job losses in this recession are permanent rather than temporary. States will need to nurture completely new industry sectors and the infrastructure to support those jobs, while the jobless will need retraining in new skills to participate in those sectors.
As we described last week in State Job Creation Strategies Part I: Finding the Money and Investing in Human Capital and Physical Infrastructure,
competing globally for jobs starts with policy makers instituting
fundamental investments in education, human capital and physical
infrastructure that make their state a productive environment for
economic innovation. The next step, as this Dispatch will describe, is helping the private sector leverage opportunities for job creation and technological innovation.
As this Dispatch will highlight, the first step is to fund jobs
that support long-term economic competitiveness, notably by investing
in people and physical infrastructure. While the economic climate for
profit-making business opportunities is more limited, investments in
education, health care, transit and energy efficiency can create
immediate jobs while strengthening building blocks for long-term
In the past few years states have become increasingly unwillingly torely on the chance that volatile global investment markets will chooseto invest in their local communities. Instead, states are choosing todirectly invest themselves in local emerging opportunities. The greatadvantage of direct investment, instead of simply raiding the statetreasury and giving away corporate welfare, is that by making directinvestment in local businesses, states create a financial stake infirms. If these businesses are successful, they will return equity tothe tax payers that can be reinvested in other projects. According to the National Association of Seed and Venture Fund, as of 2006, all but six states had state venture capital funds.
States are increasinglyunwilling to rely on volatileglobal investment markets to spot local opportunities for growing newbusinesses, but instead are acting to directly invest themselves in technologyopportunities. As of2006, all but six states had state venture capital funds, putting $5.8 billionannually into in-state business ventures, accordingto the National Association Seed and Venture Funds (NASVF).
The great advantage ofsuch direct investment is that,instead of just raiding the state treasury to give away corporate welfare,states can use such venture funds to create a financial stake infirms. If these businesses are successful, they will return equity to thetaxpayers that can then be reinvested in additional firms. Such investmentsalso can cement those firms in a web of local relationships that encouragebroader spin-off effects for the local economy.