New England's business climate shows warming trend
Your company is booming, you say? You need to expand, but you're not sure where? If you're thinking of a third-world country, you'll need what is known in the trade as a ''political risk assessment.'' Is a palace coup coming? Is nationalization just around the corner? Is tax-and-spend socialism on the upswing? Before you go, you'll want a careful analysis of the impact of a nation's political climate on business opportunities.
But suppose you're considering expanding into New England? Rhode Island is not about to be overthrown by its National Guard, nor is Maine hatching dark plots to nationalize its banks. There are, nevertheless, some subtler movements that deserve study. What, in the end, would a political risk assessment of New England look like?
That's a question I've been asking of business leaders and government officials around the six-state region. The answers are not always unbiased: Business groups can grouse overloudly about petty details, and governments can paint the future in too-rosy hues. But from all sides comes a common conclusion: New England, which has been among the most socialist of America's regions, has drifted into more pro-business attitudes. And the drift is continuing.
Not, to be sure, at any breakneck pace. New England legislatures have not abandoned their concern for the underprivileged and the consumer. Nor are the chambers of commerce dancing in the streets. But the region has clearly changed. A short (and rough) history of the decade looks like this:
Early 1970s. In this period, New England's reputation for antibusiness attitudes was apparent. The lawmakers did not exactly discourage business activity. It was simply that the expansion of social programs, and the thrust toward regulation, was expensive. The former needed tax dollars; the latter cut into profits. The region's legislators (though not articulating it this way) seemed almost to believe that business existed so that they could tax it.
Mid-'70s. Into this situation sliced two things: the increasing challenge from the Sunbelt states, offering lower wages and better tax structures; and a nationwide recession that, between 1968 and 1975, had wiped 252,000 jobs - 1 out of 5 - off the New England slate.
Late '70s. Then came the emergence of the high-technology companies - and the resurgence of the region's economy. Whereas regional manufacturing industries had suffered a 5.6 percent annual job loss from 1968 to 1975, from 1976 to 1980 they showed a 17 percent annual increase, according to figures from the First National Bank of Boston. In that period, too, the burgeoning of government bureaucracies was stemmed: Whereas government employment had grown annually by 3.2 percent in the seven years up to 1976, in the next four years it grew by only 1.8 percent annually. It was a lesson impossible for legislators to ignore: that the private sector, not the government, sets the pace of the regional economy.
Early '80s. Buoyed by their successes, the business community became even more aggressive. Encouraged by the election of President Reagan and the passage in Massachusetts of Proposition 21/2, the region's businessmen began pushing even harder for their goals - a movement that raised some hackles in the New England congressional delegation in Washington.
The present. Now, however, both sides appear to be moderating their voices. Charlotte Staelin, director of the New England Congressional Institute (the research arm for the 24-member New England caucus in the US House of Representatives), says that increasingly ''the elected officials are sensitive to the fact that the private sector is a source of strength.'' She adds that ''I think they are moving in a more pro-business way - but I think that business is more conciliatory than it has been in the past.''
That movement is also reflected on the state level. In recent years, pro-business legislation has passed in all six states. Massachusetts, the flagship of the region, has done most: In addition to tax decreases impelled by Proposition 2 1/2, it has steadily cut capital gains, unemployment, and income taxes. The effects have been dramatic. Members of the Massachusetts High Technology Council told President Reagan during his Boston visit in January that the state once known as ''Taxachusetts'' had lowered its total tax burden from fifth-highest in the United States in 1978 to 22nd-highest in 1982.
Meanwhile, Connecticut has wiped out its business inventory taxes and halved its business services tax. Rhode Island has overhauled its worker's compensation legislation. New Hampshire, which still has neither personal income nor sales tax, expanded its industrial revenue bonding act, allowing government funds to be used to finance commercial developments. Vermont has allowed its communities, through town meetings, to hammer out tax-stabilization agreements with local businesses and repeal business inventory taxes. In Maine, where taxes have remained stable, Gov. Joseph E. Brennan announced new programs in job training, river and hydropower development, and other areas.
But what of the future? Most observers expect long-term pro-business trends to continue. There are, to be sure, some potential tax increases on the horizon. But there were no violent swings in state legislatures in the last elections - although Maine, where Democrats won heavily, now has a legislature and a governor all of one party for the first time in 70 years. Jack Daigle, chief executive officer of the Casco Bank & Trust Company in Portland, says that he is anxious but optimistic. Unlike the other five states, Maine faces no budget deficit, and Mr. Daigle sees no deterioration in the business climate in the next two years. But he's waiting for the Legislature to settle down: ''Right now,'' he quips with appropriate Down East imagery, ''the chicken feathers are still in the air.''
The region's two new governors also appear to be holding steadily to a pro-business line: New Hampshire's John H. Sununu, a conservative Republican, because he has always done so, and Massachusetts' Michael S. Dukakis, a liberal Democrat, because he is trying to draw closer to the business community. Governor Sununu, facing a $36 million deficit, offered a budget Feb. 10 which, true to his campaign pledge, called for no new taxes. Governor Dukakis, who has yet to submit his budget and faces perhaps a $70 million imbalance, has come out against tax increases - in part to overcome the reputation he earned in 1975, when as governor he signed the largest tax increase in the state's history.
State Senate leaders, however, seem to be leaning toward higher taxes. But Walter P. Muther, president of the Associated Industries of Massachusetts, calls attention to the ''national politics overlay'' in the Bay State. He notes that the governor will carry a lot of clout to the next Democratic National Convention - and will probably try to avoid confrontation with business interests at home, at least until after the convention. Notes John D. Crosier of the Massachusetts Business Roundtable: ''The business community feels positive about the government's understanding of the economic climate.''
That is also the assessment by the Connecticut Business and Industry Association of Gov. William A. O'Neill's budget address Feb. 9. Although spreading the 3.5 percent business-service tax net to cover lawyers, doctors, and even barbers, he called for a reduction of the sales tax from 7.5 percent to 7 percent. Facing a $55 million deficit, ''he had to recommend increases in taxes,'' an Industry Association spokeswoman, Anne Wingate, says. ''But he avoided putting them directly on businesses,'' she added.
Rhode Island Gov. J. Joseph Garrahy, facing a $35 million to $40 million deficit, has called for an increase in expenditures. The legislators, however, passed a 3.9 percent limit on increases. And although they reported out a bill that would increase the business corporate tax from 8 to 9 percent, the business community remains encouraged. ''Things are brightening,'' says Frank Holbrook of the Rhode Island Chamber of Commerce, adding that ''the legislators are becoming much more responsive to the needs of the business community.''
And even Vermont - which former Gov. Tom Salmon describes as ''a fairly progressive state with a maverick streak'' - is leaning toward business. Proposals for a temporary increase in income taxes, and the possibility of a 3 -cent state gasoline tax, are not seen by the business community as warning shots. ''There's been a striking, albeit subtle, movement toward accommodation with business interests in recent years,'' Mr. Salmon says.
And in the longer term? One needs to remember that New England's budding pro-business attitude is still a new phenomenon. The region's coat of arms hardly shows capitalism rampant on a field of deregulation. Still in the works, in several states, are worker's compensation laws, unemployment fund crunches, and plant closing legislation. But the trend is clear: Conciliation, not confrontation, is the order of the day. All in all, New England seems a good risk.
