With unemployment stuck at 11.1%, Rhode Island is still trying to figure out how to end its economic malaise. But is part of the problem the fact that the state is another Mississippi – or worse, Zimbabwe?

Robert Atkinson is a leading expert on the United States’ changing economy, as president of the Information Technology and Innovation Foundation, a Washington-based think tank, and author of “The Past and Future of America’s Economy.” From 1996 to 1997, he was also executive director of the Rhode Island Economic Policy Council.

We talked this week about why the rapid disappearance of Rhode Island’s manufacturing base worries him and why he thinks radical changes are needed in the state’s public sector. The transcript has been edited for length and clarity.

You have a different diagnosis about why this recession has hit the United States so hard. Can you explain that?

It’s definitely different. We have a very heterodox view of what happened. Our view is that both the cause of the Great Recession and the anemic recovery are intimately related. This has really been the first major recession we’ve had that’s really been fundamentally caused by a lack of U.S. competitiveness. That’s really what’s changed.

We lost a larger share of our manufacturing employment in the 2000s than we did in the Great Depression. And when you do that, regardless of what these post-industrial optimists say, you’re going to really have a bad economy – there’s no way of getting around it. And that, I think, is the major problem with the U.S. economy. We’ve lost all these traded-sector jobs, and every time we lose one of those we lose a lot more because of the multiplier effect. So that’s just slowing down the recovery.

And the second factor, related to that, is that companies aren’t investing here as much as they used to. For example, in the 2000s U.S. manufacturing capital stock increased only 1.8%. In the 1990s, it went up something like 35%. So you’ve got companies that just aren’t investing here anymore, then you get the negative feedback cycle from that, and then on top of that I think the other factor that’s contributing to the malaise is the lack of confidence in the overall ability of the U.S. to be a world competitive leader.

One of the reasons I was interested in your thesis is because Rhode Island lost a larger share of its manufacturing jobs over the last decade than any other state. What impact do you think that had?

The smaller your economy, the more it matters. [Think about] the traded sector firms that sell most of their services or products outside the state – so when people come from Illinois to Newport and look at the boats, that’s a traded sector, but when somebody sells jewelry outside the state, that’s also a traded sector. When a state loses its traded sector jobs, it has this pretty big multiplier effect: the suppliers lose their purchasing power, the workers lose their purchasing power; they don’t buy as much Del’s lemonade and they don’t go to Safeway or wherever. So that’s a gigantic problem, and the fact that Rhode Island was the worst really sums up what the Rhode Island problem is, and why its economy has been in such difficult straits.

When you left Rhode Island in September 1997, you said the two biggest tasks Rhode Island faced were improving the public schools and making government more efficient. Why did those stick out to you?

When we did our first report and our plan, we had 10 things, and we got nine of them done – we got the [research and development] tax credit done, we got the Slater partnerships done, we even got the unemployment insurance reform done. It’s a pretty good batting average. But the tenth thing was really the thing we never did – and as far as I can tell has never been done in Rhode Island – which is make government work.

What did that mean to you, though? People sometimes get defensive when they hear that because they see it as a Trojan Horse for the right. But you’re not an anti-government guy.

No, I’m not an anti-government guy at all – far from it. I just think that government ought to be innovative and productive. I don’t mean necessarily cutting workers’ salaries or anything like that – though certainly cutting pensions in Rhode Island is a good idea – but in other words, getting value to the citizens and the users of government and making sure they’re getting good value for their money.

It was true then, and I still think it’s true now, given some anecdotal experience; my son spent a year at City Year and he was at Del Sesto Middle School [in Providence]. And listening to him talk about the public school system in Providence, I couldn’t tell whether to laugh or cry. It was unbelievably bad. He actually had a really great teacher he worked with, a wonderful teacher – but he was describing other teachers that were not very good, and an environment which was really not very conducive to learning.

The major challenge for Rhode Island, I think, is they still don’t fundamentally believe that they’re not in a seller’s market anymore.

For a long, long time, Rhode Island could essentially afford to be inefficient and quasi-corrupt at times, because things just sort of needed to be there. That was gone a long time ago, but it’s really obvious now that that’s harmful – and [yet] there’s still folks in the state who think they can get away with that, even though they’re totally in a buyer’s market. There are so many other sellers out there, if you will, sellers of places to do business that are doing much, much better than Rhode Island and are much more attuned to the fact that they’ve got to be competitive.

I made this quip once in a speech – and it kind of got me in trouble – but I said, you’ve got two choices as a state: You can be Minnesota, where you have high costs but super-good quality, or you can be Mississippi, where you’ve got low costs but bad quality. And the whole problem is Rhode Island’s got the costs of Minnesota and the quality of Mississippi.

Wow. I can imagine that didn’t make you too popular here.

That ticked off a few people. But I was trying to make a point. If you’re going to go down the path of just not much in the way of government services and bad schools and the like, then you’ve got to have really low costs. If you’re going to have high costs – which, frankly, Rhode Island does – you’ve got to put in place top-quality public services. Companies are willing to locate in Minnesota because they know they’re going to be able to attract employees who will say, “Oh, the Minnesota public school system is going to do a really good job; the government’s going to provide reasonably good services; I’m not going to have to worry about getting shaken down by these town councilmen in North Providence.” You just can’t do that anymore! You just cannot do that anymore.

And the other thing is, frankly, you have to have a viable fiscal system. Again, that doesn’t mean you’ve got to demolish the unions like Wisconsin is trying to do, but I remember when I was there, something like 75% of the firefighters in Providence were retiring on disability.

I think about 50-something-percent of all fire retirees have a disability pension now.

Right. The state has essentially turned into a wealth transfer enterprise for the unions.

That’s quite a statement. You’re a guy who supported Obama and you say you’re not anti-government.

I think government has a role to play. I’m not anti-union; some of my best friends work at the AFL-CIO. But if you just sort of like at it objectively and ask, what does Rhode Island need over the next decade to get back on its feet? It’s really got to get government in order. It’s got to bring pension and overall costs in line. It’s got to really drive efficiency, and that means firing inept people; I remember being in these meetings with Buddy Cianci – I would just watch him and just the level of, I don’t know, corruption and bad government and ineptitude and featherbedding.

The humor of the situation aside, you see a serious economic cost to the state from all that?

I really liked living in Rhode Island. There were a lot of really nice things about it. And one thing I thought was kind of enjoyable was when you’d go to a party, you could always find something to talk about with people you didn’t know – because it was like, hey, did you see what so-and-so is doing? And everybody knew about it and it was a sort of topic of social conversation. People just kind of accepted it as part of the fabric, part of the culture. But it is a very destructive and harmful part of the economic culture in Rhode Island. It explains in part why the state has struggled so much in the last decade. It still hasn’t repudiated this kind of culture and institutional behavior.

We just had an example of that, actually. A state senator alleged threatened police officers’ pensions when the majority leader was pulled over for DUI, and while that senator lost two of his committee assignments, he got to keep his vice-chairmanship of the Senate Labor Committee. And he works for the Laborers union.

I really, really, really like Rhode Island. I enjoyed being there. We still go back – after 14 years, we still have friends there that we made. And I really have a fond spot in my heart for Rhode Island, which is partly maybe why I’m so animated about all this. It really pains me how this state is just frittering away opportunities because it accepts this kind of behavior. I mean, my God – I don’t know this senator, but I can’t believe that if this were true and it was documented, why is there not a Senate hearing? I mean, is there a Senate hearing?

No. The Senate president did take two of his committee assignments but she let him keep his third one, the one that relates to his job. And that was it.

Exactly. It sends a signal. You know, companies aren’t stupid. I don’t want to say it’s like a third-world, banana-republic government, but why do companies not go to Zimbabwe or something? Fundamentally, you just cannot trust the rule of law and the government there. I’m not saying Rhode Island is in that category, but they’re in that direction compared to a state like Minnesota, Utah, Washington state.

It’s not that there isn’t scandal in every state. It’s not that individuals are pure or better in other states. It’s that the institutional response there if you do that is: You’re going to really get punished, we will repudiate you, this is not the way we do business in this state. In Rhode Island, you get to keep your committee assignment.

Let’s say you were given some sweeping powers over Rhode Island’s government and economy. What’s the first thing you would do?

[Long pause.] Wow. So here’s a radical idea – and this is going to make me sound like a real conservative – I would basically institute universal K-12 school vouchers. People are going to read this and go, “Oh man, that guy’s a libertarian!”

People are going to say I handed my blog over to a right-winger today. Why would you do that?

Because Rhode Island’s had 15 years, 20 years, to make school reform work and it has failed miserably. My son was working with these kids at Del Sesto. Many of the parents were largely immigrant parents, working-class parents, really, really having pretty high hopes for their kids to get to a level that they might not have been able to get to. And that school system was failing them. It’s really outrageous. I said to my son, if you could take a third of that money and you could just open up a school in a shopping mall and just basically take 50 kids and say, we’re going to have the same kind of classes for three years with the same teachers and we’re all going to get to know each other – I guarantee you would do a better job than what the school system is doing for these kids in this sort of faceless institution that they call the school. So to me, it’s like, you had your chance. It’s time to blow it up and really start fresh.

That’ll get people talking. Final question. You worked at the state level here and now you’re part of the national debate. In the end, how much power do states, and especially very small states like Rhode Island, really have over the direction of their economies? How much is it really what François Hollande and Angela Merkel and the House Republicans do?

I think one of the mistakes that states make is they think they have a lot more control than they really do. Fundamentally, if you think about the overall U.S. economy, we can add a lot more jobs and a lot more GDP or not, and if we’re not it makes it a lot harder for states because the level of investment opportunities and new factories or new Fidelity processing centers or whatever it might be – everything goes way down, and the state’s ability to generate stuff goes way down.

But having said that, whatever the level of water in the bathtub is, it tends to tilt toward the states that are doing a better job than not. You can certainly blame part of the problems in Rhode Island on the national economy – if the U.S. were doing better, Rhode Island would be doing better. But Rhode Island, I think, would still be doing worse than other states. Really the only thing the state can do – besides getting its elected officials to really lobby for Washington to put in place a real national growth and competitiveness agenda, which we don’t have – all they can do is get their own house in order and make it the best it can be. Rhode Island hasn’t been able to do that very well. •

(photo: Information Technology & Innovation Foundation)