Make International Trade a PA Priority
March 1, 2015
Joel Naroff, Philadelphia Inquirer
It's that time of the year when governors present their budget plans. Since budgets are fundamentally political documents, the relationship of the comments to reality is often tenuous. That said, the addresses do start the budgeting process.
Normally, the big issues of the day are highlighted, with the focus on tax and spending priorities. Not mentioned are allocations to the many hundreds of line items that don't make the news, but where some of the critical work of government gets done. The future of the economy is often determined by spending in places no one sees. One of those areas is international trade, which should become a priority for the state.
This week, when Gov. Wolf presents his first budget, he will have to face some huge problems as he tries to balance an inherited deficit of more than $2 billion. What he wants to do about increasing funding for education, reforming the flawed charter-school funding formula, implementing a severance tax on energy companies, rationalizing the state's income and business taxes, reforming pensions, raising the minimum wage, and privatizing the sale of liquor will be scrutinized in the context of that poor financial condition.
Since those issues will be dissected in detail, I want to discuss a part of the budget that relates to the nitty-gritty of governing: support for business activities. It is here that we create a more competitive economy and, hopefully, position the state to take advantage of current or emerging economic trends that can expand the economic pie.
If Pennsylvania is to forestall future crushing budget problems, it must build a broader economic foundation. One way is to tap into the rapid expansion of international trade. Consider this: In the last decade, U.S. exports have doubled. In contrast, GDP was up only about 40 percent. A key element of our future growth must come from outside our borders.
Pennsylvania needs to ramp up its activities to help businesses reach growing world markets. It is estimated that for every additional $1 billion in exports, more than 5,000 jobs could be created.
According to the Brookings Institution, between 2008 and 2013, the region's annualized export growth rate was 0.3 percent, ranking it last among the 10 largest metropolitan areas and 86th among the top 100. Even more important, Philadelphia's export intensity ranked only 58th in the nation.
We need to do better, and that can happen if the state expands its already solid base of support for export activity. A report by the Economy League of Greater Philadelphia noted that "the Commonwealth boasts the largest network of overseas trade representatives of any state, connecting Pennsylvania firms with 19 foreign offices covering 55 markets. It has the only state presence in Indonesia - the world's fourth largest population with an exploding middle class."
And that brings us back to the state's budget. This fiscal year the Pennsylvania Office of International Business Development was cut by 20 percent. When the state should be expanding its efforts to tap into a key element of future economic growth, it retrenched.
Given its port, rail system, and highway network, intensifying the state's commitment to becoming a major export center would help the Philadelphia region dramatically. It would also bolster overall state growth and enhance tax revenues.
The governor and the legislature will battle over what to do to erase the budget deficit and how to spend money on popular items. Clearly, Pennsylvania's place in the bottom 10 in the nation in state aid for education demands action. The transportation infrastructure has to be rebuilt and a realistic, long-term funding source created. These are economic needs that can't be put off.
But there are other, less visible ways to expand the tax base and ease some spending and revenue pressures created by past budgeting failures. The state should increase its funding for efforts, such as those in Philadelphia led by the Economy League and the World Trade Center of Greater Philadelphia, to expand our international exposure.
Money spent on linking our economy more closely to the world economy is likely to bring tremendous returns, with the benefits appearing soon and lasting for decades.