Governors Don't Transform Economies—for Good or Ill

They can formulate better policies, but they can't cure economic malaise.


As he hopped around the state for his official campaign launch over the weekend, Republican gubernatorial candidate Ed Gillespie laid out the case for why he should move into the Executive Mansion: He's going to shape a "dynamic economy that creates jobs"—one totally unlike the "anemic economic growth" of the Terry McAuliffe years.

This would be wonderful if Gillespie actually could do that. But he can't. No governor can.

A governor certainly can improve Virginia public policy. For starters, Gillespie is entirely right to propose "modernizing our outdated tax code, and cutting taxes for families and small business owners and entrepreneurs."

He also is right that Virginia needs to "make it easier to open a new business, and expand an existing one," and to "foster entrepreneurship and small business formation." And that the state should "repeal antiquated regulations that are a drag on job creation."

Example: Virginia is one of the worst states with regard to the imposition of burdensome, illogical occupational-licensing rules. The commonwealth even requires a license to upholster furniture. Such licensing not only makes it harder for young people to start successful careers, it also erects a barrier to skilled tradesmen who otherwise might move to Virginia. As the Brookings Institute reports, people under 35 are one-fifth less likely to move between states when they work in heavily regulated occupations.

Cutting taxes and regulation can indeed help. And if Gillespie had stopped there, he would have made a rock-solid case.

But no. Political campaigns do not reward rhetorical moderation. And save for a sentence or two nodding in the direction of Washington, Gillespie's kickoff speech leaves the impression that McAuliffe and Gillespie's likely opponent, Lt. Gov. Ralph Northam, bear the blame for the state's economic malaise—which will be cured once he takes office.

Not quite.

The Republican points out that Virginia has fallen in CNBC's list of best states for business—from first place to 13th. That Virginia has shed 69,000 manufacturing jobs, that its labor force participation rate has "hit a 10-year low," and so forth.

True enough.

But if you look at the CNBC analysis, you'll find that Virginia actually does quite well in most categories. The state ranks No. 3 for the quality of its workforce—up from No. 6 last year. Virginia also ranks third for business friendliness. And despite Gillespie's claim that "without education reforms we won't have a workforce ready to meet the demand for highly skilled and well educated workers," the commonwealth ranks fifth on CNBC's education metric—up from sixth last year. Not too shabby.

Moving up on a scorecard from third place or fifth place to first place might boost the economy—but only marginally.

Virginia falls shortest in CNBC's rankings in areas such as the cost of living, the cost of doing business, the general health of its economy and the state of infrastructure. A governor can't move mountains in any of those categories, except infrastructure. And after Gov. Bob McDonnell's $6 billion transportation package—which Americans for Tax Reform denounced as the "largest tax increase in Virginia History"—Gillespie probably won't propose a massive new public-works program, either.

Likewise, the loss of manufacturing jobs and the shrinking of labor-force participation are both long-term national trends. A president would be hard-pressed to reverse them, let alone a governor.

This cuts both ways, incidentally: Gov. Terry McAuliffe is forever announcing economic-development deals to bring a hundred jobs here and 200 jobs there. Which is nice. But in a state with a civilian labor force of more than 4 million people, such projects are of minuscule significance. (One small irony: Most of those projects probably will go on-line after McAuliffe leaves office, to the political benefit of his successor—just as Virginia's economy during McAuliffe's tenure received many minuscule boosts from deals put together by McAuliffe's predecessor.)

Gillespie is specific about ways in which he can use the federal government to Virginia's advantage—e.g., by making "sure Norfolk remains the biggest Naval base in the world" and getting "more of our federal transportation dollars back into Virginia." But keeping naval facilities big merely maintains the status quo. And there are only so many more federal transportation funds to capture: The Federal Highway Administration's formulas already guarantee no state receives "less than 95 cents of every dollar it contributed to the Highway Account of the Highway Trust Fund." This is marginal stuff, not transformational.

The biggest economic challenge facing Virginia is to diversify the economy: At present, federal spending makes up about 30 percent of the state's GDP. So when federal spending shrinks, Virginia gets squeezed badly. Even assuming it's the governor's job to reshape the economy, which is questionable, Gillespie has offered no specifics about how he would. If anything, he wants to lean more heavily on Washington (see preceding paragraph).

Without a doubt, Ralph Northam will make a similar case in the months ahead: Vote for him, and he'lll turn Virginia's economy into a raging, steroidal growth machine, and everybody will have so much money they won't know what to do with it. It's an alluring pitch. It's also a sham.

This column originally appeared at the Richmond Times-Dispatch.