NMIRI

The Economic Transformation of New Mexico:

From Socialism to Capitalism

Report on Governor Richardson’s Shell Game

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A NMIRI Research Study

Educating NM Citizens and Policy Decision-Makers

February 27, 2003

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Speech Delivered to the CEO Group

Farm and Ranch Museum, Las Cruces, NM

February 26, 2004

By Professor, M Gene Aldridge, NMIRI Board Member

Thank you Noli for inviting me back to speak with your CEO group this year. Our board of directors at the New Mexico Independence Research Institute, Inc. sends their regards to all of you. Founded in 1997 to foster economic freedom for all New Mexicans around the values of free market economics, personal responsibility and limited government, this organization has had many successes at educating the citizens of our state on public policy.

NMIRI partnered with many groups to stop the takeover of El Paso Electric by the City of Las Cruces. We saved the taxpayers $180 million dollars.
NMIRI has successfully driven down the state income tax with two Governors saving the New Mexico taxpayer millions of dollars.
NMIRI has provided sound public policy education and research around the convention center concept in Las Cruces in an attempt to the save the taxpayers
$22 million and much more in potential down side losses for taxpayer. Our hope is that the City Council will see the light and just let the private sector create the new convention facilities over time. Hilton, for example, has one proposal for a 30,000 sq ft facility and 300 rooms.
NMIRI cooperated in public policy education which resulted in the rejection by Dona Ana Country residents of the raid on the Education Permanent Fund, but was adopted by a few hundred votes statewide.
NMIRI in previous years has published one of the first private economic reports in the state of NM, separate and apart from the public ones created by the universities that are dominated by public money from the legislature and whose credibility is always suspect for political persuasion.
NMIRI continues to work for education reform in an effort to bring down the monopoly of government schools that has not allowed competition in NM and has fostered lack luster accountability over many years. Our educational system in NM is in poor health and getting worse, not better.
NMIRI research work in health care reform, international relations, U.S.-Mexico Border Health and Economics, economic reform (our topic today) and immigration policies is known to our many readers and subscribers too.
NMIRI assists candidates from all parties with public policy issues and educates the public too on topics of concern for the state of NM.

We can always use your help on these projects and issues and we encourage all of you to write a check out for NMIRI in support of our tax-exempt efforts. Remember our values are free markets, limited government and personal responsibility.

T.S. Eliot wrote a poem about “Hollow Men” and These Hollow Men were neither good nor evil. I would like to read a portion of it for you now.

The Hollow Men by T.S. Eliot

We are the hollow men

We are the stuffed men

Leaning together

Headpiece filled with straw.  Alas!

Our dried voices, when

We whisper together

Are quiet and meaningless

As wind in dry grass

Or rats' feet over broken glass

In our dry cellar

Shape without form shade without colour,

Paralyzed force, gesture without motion;

Those who have crossed

With direct eyes to death's other Kingdom

Remember us--if at all-- not as lost

Violent souls, but only

As the hollow men

The stuffed men.

Neither good nor evil, in Eliot’s sense, the hollow men and women prevail in economics today in New Mexico. They take us no where in economic terms. They ignore the facts and march forward into folly with larger and larger state government that consumes financial resources that could be used for private investment. Most of these hollow men and women lack vision for our state. Today, I want to talk with you about

A new economic development vision for New Mexico in light of our current situation as a state.
Provide a short report on the actions of Governor Richardson during his first 13 months in office and the inefficiencies of government in NM. as it relates to economic development.
Offer you a new model for economic development in NM that is based upon sound economic theory and action that garners results for citizens leading to more economic freedom, thus liberty.

Study of Economic Development

Economic development comes in several forms. First, the economist discusses economic growth and development as it relates to economic progress of nations. Many economists view this field with some uncomfortable concerns because it is not seen as “real economics”. Rather it is an amalgam of many fields like sociology, anthropology, history, politics and some ideology. Second, we have the field of economic development for professionals in state and regional governments and they operate with a definition of economic development as follows:

"Economic Development: the process of creating wealth through the mobilization of human, financial, capital, physical and natural resources to generate marketable goods and services. The economic developer's role is to influence the process for the benefit of the community through expanding job opportunities and the tax base."

(AEDC – Amercian Association for Economic Development, 1991).

This second definition of economic development is the one that is used most often in the U.S. by groups within states and state governments to promote the state or a region in the state. Unfortunately, these professionals in economic development have left the main track of what economic development is suppose to accomplish. Supported mostly by government money, but often private money too, these groups are now using the government to support corporate welfare in a manner that is detrimental to the taxpayers. They seem to want the taxpayers to fund their pet projects when in fact it is the private sector that should be funding the projects. In other words, the public sector taxpayer is being asked to be the investor-banker for projects like convention centers, for example, that are losing propositions in the first place. If a convention center is going to bring big money, then let the private sector be the investor because they garner the wealth from such projects. The taxpayer does not garner wealth from projects like these. Economic development must be driven by the private sector investments period. The only exception would be for roads and security. Have economic developers in the U.S. gone too far with their corporate welfare and have they produced the outcomes expected and touted by economic developers? This research explores these questions in NM, one of the most socialistic states in the U.S., i.e., a state where government predominates and statism is almost a religion.

Scholars in economic development, that is, economists who have tried to build theories of economic progress for nations, struggled early in the 19^th and 20^th century to evaluate what holds some nation’s back economically while other nations thrive. Just what is the formula for the successful nation and economic growth? Adam Smith and even the Classical School of economics were deeply concerned with economic development within the formal field of economics. Schumpeters work in 1911 was one of the first books entitled Theory of Economic Development. Entrepreneurs create innovation and growth, not governments was Schumpeter’s view. Financial innovation is also related to entrepreneurial growth. Even the German Historical School of economics and the American and English counterparts to this school, were all concerned about how a nation or state created sound economic growth.

In the 1930’s Colin Clark worked on quantitative studies realizing that many nations were not developing at the same rate as were capitalistic societies. In the 1940s Paul Rosenstein-Rodan and Kurt Mandelbaum focused on the reconstruction of Europe Post WWII in an effort to assist in rebuilding Europe. During the Post WW II, the United Nations also was involved in working out the details of economic growth with new groups like the World Bank, I.M.F. and I.L.O. in their efforts to help developing nations.

Capital formation and Growth as Drivers of Economic Development

Current historical trends in economic development include “stage theory”, where stages of economic development have been identified by Walt Rostow, 1960s and Alexander Gerschenkron, 1953 and 1962.

Still other theorists said that output growth(Nurkse, 1952) was important as it related to economic development and still others focused on capital formation as the key to sound economic development. “Dual economy” was a favorite idea by persons like Lewis, (1954,1955) pushing the idea that savings was critical to economic development. Social engineering economists like Kaldor and Robinson, Keynesians who supported government intervention and income distribution as the eventual determinates of savings and growth. The ideas supported by the Keynesians early on were that government intervention could solve the problems associated with low savings and low growth and even balanced growth by scholars like Singer and Myrdal touting cumulative causation. So planning, socio-economic engineering by government or “demand management” were all core ideas around the Keynesian’s ideas that government should do it all.

International trade was also seen as the stimulant to growth by Myint, Haberler, Viner by extending the market beyond the domestic borders. All of these theories related to growth of an economy and the use of capital formation, primarily by government.

Social Indicators for Economic Development

These early ideas mutated into issues about the social aspects of economic development. Schultz introduced the idea of human capital formation as the essential ingredient to sound economic development. Singer and Lewis later expounded upon this notion by arguing that all other social issues were then related to human capital formation, e.g., inequality, urbanization, agricultural change, health care, unemployment etc. Seers said that economic development was more than capital formation and growth, it was about social development and the collective good. In this case the goal, therefore, of economics was to rid the world of poverty too. These are often referred to as structural growth issues in economics. Schumacher came out with his book Small is Beautiful arguing against industrialization and promoting the idea of “craft economies”. From all these debates emerges the idea that economic development is also bad for the environment and new ideas needed to be injected into the economic development debate.

The Structure of Underdeveloped Societies and Cultures

Hirschmann(1958) argued for country specific analysis of development noting that structural issues of development between different states were critical to understanding economic development. Seers supported this idea as well. Singer and Prebisch created was has become known as the dependency theory arising out of notions from Colonialism that nations were being made dependent upon the industrialized nations like the U.S. and Western European countries. They stimulated great debate with the idea that smaller nations were the raw materials producer for the larger more industrialized states. The Marxists loved what Prebisch and Singer were saying because they could again tout the idea the government and savings were the key to good sound economic development. Of course, these theories now are in great retreat because they do not hold up to scrutiny especially as it relates to government intervention.

Neo-Liberal Theory and the 21^st Century View of Economic Development

Leading a new debate were scholars like Bauer, Little, Lal, Balassa, Krueger, and Johnson. They argued that government intervention was the problem, not the solution for sound economic development. They argued that governments suffocated the private sector and the government should stay away from economic development because the government intervention also distorted prices as well. Inefficiency was their main theme about government placing a drag on the economies of third world nations.. All of the problems and issues cited by the structuralists, these authors maintained were created by too much government, not too little government. These debates continue especially by both groups who use Asia and Africa as examples for their various arguments, but in our view, mistakenly so.

Austrian School of Economics and a New View of Economic Development

The thematic schools of economics include business cycle theory, empirics/econometrics, imperfect competition, economic development, uncertainty/information, game theories, and finance theory. Without discussing all the threads of economic theory that emerged from the Austrian School debates, it was indeed fertile ground for economic theory growth of from 1871 to 1937-1945 time period. It was the third generation of the Austrian School that has the most to share with us in the 21^st Century. They laid the ground work for why government planning and economic development guided by the “seen hand” of government was not effective, but that the “unseen hand” of the markets was much preferred.

Friedrich von Hayek created a theory of knowledge about economics and economic growth-development that confronted the Keynesian notions and the general theories about government intervention. Hayek in 1941 linked capital and macrofluctuations and no one was listening. Hayek worked hard in England after the Nazi invasions and eventually won the Nobel Prize in 1976 for his work. Von Mises came to the USA and influenced NYU and George Mason where many of these thinkers reside today. Their central thrust is that “market processes,” not equilibrium as controlled by government, were the key to sound economic understanding about growth. To this day the “Theory of Capital” supported by Lachmann (1940) and now Hicks (1973) still drive modern economic development theory.

What we have in all these debates is an emerging consensus about economic principles that drive sound economic development for states like NM. Here are the key ideas from these debates:

o Government intervention in economic development causes less growth than more growth, if economic growth is the goal.

o Private capital, which is the stock of assets accumulated for productive purposes, is needed to create sound economic development…not tax waivers or other artificial incentives now being used in economic development

o Wealth is surplus value and it must be set in motion with existing industry clusters economically to increase economic growth, not by government, but by the private sector.

o Economic speculation via the markets is what creates increasing productivity and eventually more wealth.

o The higher the accumulation of capital by a citizens of a state, the more it is possible for specialization and thus, the higher the productivity of the citizens of the state.

o Infusion of capital or money by government is a lost leader and will not produce the results that market processes create to increase productivity and specialization in industry clusters…money is not capital….capital is value.

o Property as an asset is the mechanism that allows poverty to be reduced provided that legal systems exist to help more and more people own property and protect it. This fosters economic development.

o Economic well being of citizens is more threatened by statism, like the “New Deal,” than by any other single factor. Statism, cuts down on capital accumulation through excessive expenditures and saps the material well-being of the citizens and business to produce for the markets.

o There is no substitution of government for the market economy. Socialism steals both personal and economic freedom.

o When citizens are beholding to the government for their jobs, they are not free citizens to choose between right and wrong. When the citizen is economically independent of government a citizen is truly free. Thus, if you want freedom for your conscience, you must abhor socialism as a means of economic development.

On this basis, then, using the theory that has emerged on economic development internationally, we apply these principles of sound economic development to the state of NM. Our analysis begins with a “factual state of the state” that you will not hear from a Governor at inauguration or when he addresses the legislature. We identify our thesis, create an analysis for our thesis and then a synthesis for the reader on what we believe to be an effective model of economic development for NM as a matter of public policy.

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“Where there is no vision, the people perish,” Proverbs 29:18

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Situational Analysis for the Economic State of New Mexico

Today, we have been invited to discuss the needed economic transformation of New Mexico and in light of the needed transformation, provide a report to you on Governor Richardson’s plans for economic development of the state. First, we will provide our thesis, then analysis and synthesis for the nature of the challenge before us in NM.

Thesis

For New Mexico to compete and grow economically, it must be competitive with other states, especially adjacent states. This requires a transformation. No sound economic development plan will be successful until NM restructures taxation to achieve competitiveness and to encourage corporate growth and expand the number of private jobs. At the same time, government and the number of government jobs need to be reduced. The state of New Mexico is suicidally socialistic. The government consumes the human and financial resources needed for positive economic growth and private expansion. The state is eating the goose that literally lays the golden egg. The transformation from a socialist economy to a capitalist one is essential for real economic growth to occur over time. The economic development model that has been created by Governor Richardson fails to offer reasonable hope or expectation of such a transformation primarily because it is more of the same old socialism. Now for the analysis…

Analysis

What are the critical elements needed for economic development that might truly transform the state? Let us begin by looking at the present economy and demographics.

As NMIRI has indicated in other studies (March of Folly by NM Politicians on Public Policy: Why? - 2003) the economic picture in the state is not pretty. Here is a short summary of the some of the key variables that make up our economy in NM.

Income

Per capital income ranges from $13,187 in Mora County to $40,482 in Los Alamos for a statewide income of $23,155 (2001) compared to 30,477 nationally, a NM ranking of 47^th nationally in per capita income. Economic disparity abounds in NM
Dona Ana County per capita income is $17, 321 for 2000. Note that this part of the state does not even make the state level of per capita income.

Employment and the Economic Regions of the State

Economic regions of the state have been divided up by the NM Labor Department into four areas. North, Central, Eastern, and Southwestern regions. The total population of NM in 2000 was 1, 819,046. While the U.S. population grew by 13.2 percent, NM grew by 20 percent during the last decade. The population distribution in 1999 looked something like this for each region: The North Region had a population of 458,620; The Central Region’s population was 695,228; The Southwestern Region was 262,453 and The Eastern Region comprises 232,453. Between July 1996 and July 1999, net migration decreased by 23,885. Since 1994, due to an economic slowdown and low wages, migration declined significantly in the late nineties, but seems to be picking up again early in this decade.

Population Base in NM

By 2010 NM is expected to have a population of 2,112,957 and Dona Ana County is expected to have a population of 218, 523.

White groups made up 48 percent of NM population in 1999, while non-whites made up 52 percent of the total population. Hispanics have increased their share of the population in NM from 38.4 percent in 1990 to 40.3 percent in 1999.

Unemployment in NM

NM unemployment rate has been running 4.9 for 2000 and 4.8 for 2001 with about 40,000 workers out of work in the state for each of those years. Dona Ana County’s unemployment rate has been 6.5 for 2001 and 6.7 for 2001 while the national average during the same time was about 4.0 and 4.8 respectively. In 2001 (Sept) NM unemployment was 6.1 percent or 6^th in the nation in unemployment.

In 1999 NM had received $47.5 million in special grants by the U.S. Labor Department to prop up jobs and provide training in NM. Loans of $7.39 million went to save 1350 jobs in NM from 1990 to 1999 or $7112 cost per job to save the 1039 jobs in NM for nine years.

Job Growth in NM

From 1998 to 1999 there was a job growth of 13,200 employees in NM, but those were mostly in the services industries. Since 2000 many industries like the Phelps-Dodge mining in Silver City folded with the hope that they will reopen in 2004 with at least 200 employees. Mining dropped by -11.1 percent in 2002 in NM. Call centers in Las Cruces have folded and left town since 2000 leaving several hundred employees without work. Monarch Litho, a small ($41 million investment) printing operation expects to have about 105 new jobs within five years in Santa Teresa, NM. Our job growth in NM is generally weak and creates instability in the economy statewide. Construction has been a little stronger offsetting some of the industrial losses that have been experienced statewide since 2002 (down -3.5 percent), but construction is expected to see 1.7 percent growth for 2003 and 2.1 percent for 2004. Retail trade employment is 0.4 for 2002 and may hit 1.7 percent growth for 2003. Manufacturing is weaker yet declining employment was 6.0 percent in 2002 and is expected to remain weak for 2003 and slow growth for 2004.

The DOE reports demonstrate that government economic feeding of the NM economy is huge. The estimated DOE economic multiple contribution through places like Sandia Labs and Los Alamos is $10.2 billion in fiscal 1998, for example. This is based upon a $2 billion dollar investment by the U.S. government in NM during the same time period. This commitment, reportedly, creates 72,500 jobs for NM statewide with an actual employment of about 20, 214 by DOE in NM. DOE accounts, therefore, for about 7 percent of the entire workforce in NM

Wal-mart is the one of the largest employers in the state at 9,218 while the Albuquerque Public Schools has 11, 807 employees in 1999. Again high reliance on government employment to sustain the economy of NM. About 66 percent of the total employment economy in Las Cruces is government driven jobs. Las Cruces could exist for ten years without any new government sponsored (indirect) or government jobs (direct) being created before parity in public/private jobs would occur.

State Economic Rankings Poor in Sectors that can Grow an Economy

In 2001, NM ranked 42^nd in the nation in construction with a loss of 4 percent during the 2001-02 year.

NM ranks 25^th in manufacturing during the 2001-2002 time period and we were down 3.2 percent.

In 2001-02 NM was number 1 in nation for government employment growth at 3.7 percent, while everyone else was much lower trying to contain costs.

The services economic sector of NM places the state at 9^th in the nation with a 6.1 percent growth for 2001-02.

“Government” is the biggest (24.8 %) employment economic sector in NM second only to “Services and miscellaneous” at 29%. All the while manufacturing sector of the employed economy in NM is 5.7% whereas in most states manufacturing is at least 13 % of the economy…and 13.4 % in the U.S.

In the U.S, for the 2000 census, the poverty rate was 12.4 percent. NM ranks #4 in poverty for all the states and the District of Columbia at 18.4 percent! NM continues to do little or nothing about its poverty rate economically with liberals holding the purse strings in NM. The poverty rate in Dona Ana County is 25.4 percent and in some areas of NM the poverty rate is 36.1 percent (McKinley County).

Dona Ana County is 5^th in the state of NM for recipients of food stamps at 24,260 or 13.9 percent of our population.

239,981 persons over age 25 in NM have no high school diploma and in some cases no education beyond 9^th grade. This represents 21.2 percent of the over 25 age population in NM. We are uncompetitive for educated workforce development. This means we are not helping businesses to meet their overall training needs with tailor-made educational programs.

NM taxation structure inhibits economic growth and competitive positioning relative to other states with the following taxes: gross receipts tax (5.125 to 7.25 percent), personal income tax (1.7% to 7.7 percent), compensatory taxes (5 percent of the value of the property) on purchases by business from out of state, personal income taxes that are much too high relative to other states in our region, corporate income tax (4.8 percent up to $500,000 to 7.5 percent over $1 million), corporate franchise fee ($50 per year), property taxes (lowest in the nation based upon one-third the assessed value), severance taxes (ad valorem taxes for mineral extraction in NM – oil and gas account for 90 percent of the revenue flow), worker’s compensation tax fee ($4 dollars for every employee), unemployment insurance (2.0 percent as of June 20, 2003 for a period of 4 years, then based upon experience with claims), Insurance premiums tax fee (3 percent of gross premiums), lodger’s taxes that make tourism dependent upon government when they should be independent to stimulate regional competition by business, and capital gains taxes ( while being cut in half over five years by the 2003 legislature) should be eliminated to entice even more older persons and newer investment groups to the state. NM, like a developing country, has much too much government and too many taxes to make it competitive for business and industry.

Industry and business clusters need to be clearly identified that form the strengths of NM and the areas where growth can occur. Once identified and agreed upon, NM should aggressively market the state to corporations in those sectors.

Taxes Continue to Prevent Sound Economic Development and Growth from Free Markets

Please note that our taxes in NM are way out of line on several fronts. First, our state revenues, as percent of personal income stands at 9.9 percent or 2^nd in the nation. Second, state and local taxes, as percent of personal income, are 12.7 percent or 5th highest in the nation. Yet, we have very high poverty in the state. How do we expect to have economic growth with this kind of taxation structure? We can’t…it is that simple.

New Mexico Taxes - Summary

Gross state tax revenues: $4 billion, rank 35th in nation

State tax revenues per capita: $2188 or 13th in nation

State tax revenues as percent of personal income: 9.9 percent or 2nd in nation

State and local taxes as percent of personal income: 12.7 percent, rank of 5th in nation

Source: Governing.com

New Mexico State Collection 2001 - Summary
Individual income taxes Sales Tax Selective sales tax Corporate Income tax Property tax Other taxes	20.7 percent 40.5 percent (Should be 55 percent) 11.6 percent 4.8 percent 1.0 percent 21.4 percent
source: Governing.com

Synthesis for the Challenges

The analysis of NM economically reveals, in a quick snap shot, the many challenges that lay before our state.

Reduce Poverty with Job Creation in the Private Sector for Eight Years

We have way too much poverty. To improve economically, New Mexico must address the fundamental and structural impediments which tend to lock in current levels of poverty. NM must move from high dependence on government job creation to private sector job creation and continued growth. Our ranking on per capita income must change if we are to have sound economic development. Yet, we have governments that claim they care about people while year after year our poverty rates climb or remains high.

Education

We must educate our children so they can compete for high quality jobs that can be attracted to the state. The universities and community colleges must lower the number of those persons educated for government jobs (social workers, criminal justice, public administration, etc.) in favor of jobs that can be filled in high technology, bio-engineering, and other knowledge-based employment options.

Manufacturing Growth Needed

We must foster a more balanced economy in NM to facilitate the growth of manufacturing and private sector growth while lowering government employment to less than 10-15 percent of the economy. This would leave us less vulnerable to the fluctuations of national government spending.

New and Existing Industrial Clusters

Relying on the services and the government sectors of our economy will not provide adequate economic growth in the near or longer term future. NM needs to build upon existing industrial clusters. High technology industries, especially those adjacent to and spinning off from national laboratories and defense facilities in the state provide opportunities in information technology, communications, aerospace industries, life sciences and genetic engineering. Other opportunities exist in seeking that healthcare corporations locate their headquarters here. Other natural border clusters like distribution-logistics for Mexico and U.S. creates even more synergy for job growth in economic development. Seeking finance-insurance investment corporations that are domestic and international to reside in NM will bring capital to the state. Working the agricultural based industries that can tap into existing agricultural resources is very important like high speed can manufacturing facilities to package the food we produce locally. Building on these will produce greater income for the NM citizens and attract talent from other states.

Workforce Development

o Workforce development must come from the community colleges and the leadership from Human Resource managers in the private sector to make use of the possibilities as provided for in the Workforce Investment Act. NM needs a network of educational programs that are first rate, not third rate. This must be accomplished with the private sector taking the lead, but working closely with the educators in the state. For example, tailor-made education for corporations is necessary and essential, but the business schools and the community colleges have done little in this regard in NM to foster instant programs for new corporations who come to NM. Money for education must be hooked to outcomes of education. Private investment in schools to create competition within the state is badly needed. The schools we do have must be made accountable for their outcomes. Not just in test scores, but in producing real workforce individuals that will support our industry clusters for NM. The linkage between the private sector and the educational establishment for workforce development is critical for transitioning into success in economic growth as a state.

Summary of Challenges

o In summary, the combination of high income taxes, capital gains taxation, gross receipts taxation, and compensatory taxation on small and large businesses and individuals leaves NM uncompetitive relative to neighboring states which have much more economic freedom than does NM. Unless these taxes are restructured and increases restrained, there will be little change in the state’s competitiveness. NM will essentially remain a third world state that is underdeveloped economically by virtue of its attitudes, policies and actions. These attitudes, policies and actions must and can change over time to unleash the economic power of the state. Greater economic decision-making must be politically redistributed to the local governments and regions in order to make the economy more responsive and competitive. Capitalism must replace socialism in New Mexico.

What is the Shell Game that Governor Richardson is playing on the New Mexican Citizenry?

More and More Government – Pretending to Create Jobs

Governor Richardson and many of his elected colleagues from both parties really believe that economic development requires government funding to be successful. Greater government funding invariably gives greater control to the same government responsible for the structural and uncompetitive attitudes, policies and actions generating the original failures. As long as key economic development funding is for new government buildings in key markets throughout the state, the taxpayer may see some government job creation, but that only increases and aggravates the taxation issue in NM…it does not help it. To raise taxes on business sectors like hotels and motels, for example, at the state level in order for local municipalities to build convention centers subverts the private sector on which economic growth and success ultimately depends. Again the government is taking taxpayer investor money when the private sector should be encouraged to provide the capital for such projects.

Lower Some Taxes and then Raise Many Others – The Result Higher Taxation

There is also a shell game going on by our current Governor and many state elected officials that must be monitored carefully. In order to look like a tax-cutting Governor, Richardson has lowered some taxes like income taxes, but rather than asking government to tighten its belt to decrease the size and cost of government, he increases his staff by 544 percent over previous administrations, and raises taxes on a whole host of other areas. He spends $17,000 dollars on a marble conference table in a second office in Albuquerque while he asks the rest of NM government to be efficient and control costs, why? Hide the pea under the shell is the game. He hopes the taxpayers won’t wake up to the fact that this is occurring by ignoring his tax increases while he and his staff are touting his tax cuts. Here are some examples that have been supplied by Senator Rod Adar in his analysis of the policies:

First, he has provided tax relief in the following areas – Fiscal 2005

Income tax reduction $72 million

Capital gains tax reduction 10 million

Unemployment reductions 23 million

Other small reductions 3 million

Total Tax Reductions $108 million

Second, his tax increases are in the following areas – Fiscal 2005

Audit compliance/Enforcement 21 million

One cent gasoline Tax 8 million

Increased fuel tax (truckers) 14 million

Trucker Tax weight distance 21 million

Oversize vehicle permit 3 million

Permit wt/distance cards 1 million

Liquor Licenses fees et.al. fees 8 million

Residency Redefinition 4 million

Vehicle Registration Increases 22 million

Highest Cigarette Tax in Nation 47 million

Medicaid Premium Tax 8 million

Total New Taxes 2005 $182 million

This is not the whole story, however, Richardson and his tax bandit gang are really tax and spend folks who have also raided the permanent fund by $ 78 million dollars in new forced revenues within the state government and he has raided the tobacco fund of $ 37 million. Remember, the famous tobacco settlement was to be used for health education in each state. Not in NM. The problem with forced revenues from funds like these is that they create new demands on the fiscal system down range. That is they become tax increases to the budgets when their funding deadlines are reached or when the funding source is dried up.

The total tax increases and forced taxation via revenues from funds for the 1^st full year is $289 million dollars (for fiscal 2005) compared to his tax relief packages of $ 108 million. Many of these taxes he had hoped no one would notice, like gouging the truckers who come through our state on I-10 and I- 25. Richardson and the left wing tax banditos in the legislature thought that the truckers could not scream too loudly, but all this effects economic development in the state. Even many right wing folks will tell you it is ok to hit up those audiences like tourists that don’t scream directly to their legislators. They tell us it is ok because it is just a “pass through tax”. Any tax is harmful, so we must get rid of as many as is possible to grow the economy. The ignorance about economics in NM is pervasive, unless, of course, you are a Keynesian and believe government should be the investor in all things economic.

The above figures to do not include the 2004 data on Governor Richardson’s term either and does not include the legislative session ongoing right now. He has created $302 million in new taxes and if we include his raid on the two funds, the total is $ 488 million in new revenue/taxes that have been forced upon the NM citizens. For the 13 month period, then, of his term, his tax reductions were $154 million, so the taxpayer gets gouged to the tune of $334 million. He wants you to believe his shell game as a tax cutter….I hope you now understand that this Governor is a tax and spend Governor, not a tax cutter. What is even sadder is that the local journalists get an “F” for keeping this administration honest and accountable to the public. They publish his rubbish about being a tax cutter without seeking opinions like NMIRI and others who know better. Could collusion be the problem there?

Government Waste and Inefficiencies in NM

Besides the tax and spend Governor Richardson, we have the ongoing problem of the size of NM government. Not only has government employment increased by 2.7 percent in 2002, but in the first two quarters of 2003 the employment in state government has gone up by 1.8 and 1.4 percent respectively. All this while the federal level of employment dipped by 0.2 percent.

The government of NM financially is now almost $10 billion dollars annually and has a workforce of about 20,000 employees. This government wasted money ($21 million) on unnecessary contracts last year according to the Governor’s own efficiency report. Here are a few more examples:

v One in four employees in NM is a government worker

v $14 million in overtime pay to state employees in 2002

v $6.2 million in wrongful termination of state employees

v 63 multiple and redundant IT (Information Technology) units in state government rather than one good IT system at a cost of $ 5 million per year for duplication

v the state pays about $250 million per year for IT, duplication in e-mail software services drive up costs by at least 10 agencies in NM government

v deposits for payments in the motor vehicle department are often held for many months before deposits are made

v over 70 outside agencies have access to personal citizen data in MVD data systems without the permission of the individual citizen

v computer software licensing agreements are negotiated by many different agencies within NM government rather than one licensing source with volume benefits for purchasing

v contractor payments are made late by state government causing laws to trigger

$650,000 in additional payments each year for construction contracts

v Medicaid costs the taxpayer in NM $408 million (2003) while serving 390,000 persons

v food stamps and needy families cost the government $230 million (2003), fraud may cost NM taxpayers over $ 10 million per year in Food Stamps alone

v according to Governor Richardson’s own data, NM spends about $12.3 million in postage in an era when e-mails exist

v $36 million additional is spent in leasing office space for government workers

and if the state is forced to litigate water rights just with Native Americans in NM the estimated cost of litigation would be about $500 million over several years.

Government needs to be efficient, but smaller too and we sure don’t need the state government investing, through bonds, in anymore real estate unless it is absolutely necessary since we lose tax base from such activities of government ownership in real estate and land. While Governor Richardson has agreed that state government is inefficient, he has not made a move to downsize the government where necessary. We need less government, not more government and we need accountability on all the Governor’s proposed efficiency actions over the next few years. Downsizing government, leading to less taxation over time, would increase the potential for better economic development and less overall cost to the taxpayer. Meanwhile the Governor increases his staff cost from $49,332 to $ 268, 259 and orders a $17,000 marble table while he asks the rest of government to control costs.

A New Model for Economic Development is Needed in NM

The current model of economic development does not work in the short term or long term. The shell game and inefficiencies of government created economic drag on the economy and do not allow for economic churn of businesses that will advance economic development in NM. What is needed is a free market model of economic development that limits the government’s role, keeps government out of the way of the private sector, and creates more reliance on the free markets to increase revenue for the state government, thus lowering taxes. This economic policy for the state will stimulate the economy making NM competitive regionally.

A Vision for Economic Development for NM?

According to the AEDC (American Association for Economic Development, 1991) the following definition encompasses economic development.

But successful economic development is much more.

v Economic development is about reducing poverty through job creation that builds diversified new sectors and sustains existing industrial clusters that drive the economy of a region or state. In other words, just creating service jobs will not sustain the economy of a region or state. Too much government employment creates economic drag also. So when someone tells us they created X jobs, then we have to ask; what kind of jobs and from which sector were they? NM needs to create manufacturing employment base of at least 15 percent of the total workforce.

v It is about ensuring, to the extent possible, that private capital, not public capital is the driving financial resource, thus keeping taxation low so that increased tax bases will ensue from the efforts. This is true because lower taxes mean higher revenues for governments due to increased volume of business activity for a low tax state or municipality. Study after study supports this thesis.

v Public-private partnership does not mean that the tax payer acts as the front money for development of a project either through direct taxation or bonding authority necessarily. What public-private partnership means is that the government has a “one stop shop” and stays out of the way of the project so that the private sector can develop it. No one in NM should wait more than 60 days for results from a one stop shop. This kind of partnership can mean that the government does stimulate the markets for a state or region by ensuring that private investors and corporations understand the lower tax structure that may exist to enhance profitability in the state or city.

v Stabilization of local economies is a gift that is derived from good diversified economic development without any single sector domination, like government, or even government-related sectors like health care which dominate the employment patterns. The key is stabilization through diversification.

v Effective economic development allows a state or local community to control their economies more effectively without high taxation. This means that marketing by the city or state to private sector groups is a continuous process that must be sustained internationally with results and accountability. Most needed in NM is capital and capital formation groups to be headquartered here.

v Economic development must diversify the local economy while ensuring a quality of life for the citizens who live in the state or region. It other words, economic freedom (limits on government taxation especially) create more liberty and allows, through free markets, the creation of a diversified economy.

v Workforce Development is key to sound economic development. This means the community colleges and the universities have strong partnerships between businesses and education in the region. This is essential for workforce skill set development for a region’s clusters of industries and businesses. Community colleges need to be flexible in their approach to economic development by offering specialized courses tailor-made for new and existing corporations as their workforce needs change. Community colleges should, therefore, be part of the greeting committees for retention of existing businesses and inviting new businesses to the community. Working with local private contractors for education, community colleges have to supply specialized education like project management and other high technology and industrial programs to entice new corporations.

v Successful economic development requires capital from the private sector. Venture capital firms need to be part of the cluster analysis work for economic development so that there will be enough private capital to drive new projects and activities where often millions of dollars are required by investors, not government. NM has the potential to become a knowledge-based regional center for economic development, but it lacks real venture capital, experienced entrepreneurs in technology and bio-engineering, a skilled workforce in this respect, or critical mass for industry clusters in new areas like biology and gene pool research. Two examples for this kind of clustering are the North Carolina Biotechnology Center and the Pennsylvania Ben Franklin Technology Partners. NM needs to have a least two or three such centers located in key markets within the state for successful economic development and funded by private development.

In Summary – Real Economic Development Action Plan

Like all developing nations, New Mexico (NM) has attributes that define it as a small state trying to break the bonds of the past from socialism to real capitalistic economic growth. Because of 40 years of domination in NM by the liberal left in the state legislature only Roosevelt socialism survives with the result being that the state is one of the highest in poverty of any state in the U.S. NM is behind on education and lacks accountability. NM health care reform is non existent and poor quality of care is evidenced in the public and private sectors. Economic growth is hollow via jobs that are low paying and do not enhance the higher paying jobs in, for example, sectors like manufacturing or high technology bio tech areas. This NM economic disaster is presented to you by the liberal left of NM who really don’t care about people, but who tell us they care about people. This contradiction of words and behavior can no longer be tolerated in NM and requires a new agenda.

It is especially important now because NM has a liberal left socialist Governor who is pretending to lower taxes with one hand while raising them with another in an endless shell game of higher and higher taxation that is going stratospheric. What is known by economists is that high taxation keeps corporations and economic development from happening because neighboring states do not allow NM to compete regionally. When compared to other states on per capita income, and the percent of total taxation in the state, NM cannot make the case for effective competition with corporations or businesses that might wish to move here, especially when compared to other states in the region. This never ending cycle of bust, bust, bust and fantasy economic development, where special tax deals are created for gross receipts taxes, compensatory taxes, corporate taxation, and other government giveaways that affect the local taxpayers and businesses, must stop. This fantasy model of economic development does not work and has not worked in NM. This fantasy model promotes bad private sector corporate welfare that creates dependencies that are as negative on the economy as social welfare has been in NM. It must stop in favor of a model for economic development that is based upon real economic behavior that moves statewide economic systems, to growth and renewal under capitalism and free markets.

What is needed is a new model of economic development that allows for the following:

v State taxes (collectively: income, sales, corporate, compensatory, gross receipts, etc.) must be lowest in the region period especially as it relates to personal income and total taxes taken from the citizens.

v A public-private partnership is when the state agrees to assist in marketing the state to corporations world-wide and lowers taxes across the board, not just for specific “sweet heart deals” with individual companies, but to compete with neighboring states. The best economic development is when NM helps existing businesses meet their needs first by lower taxation as part of the public-private partnership for everyone.

v Mexican and Latin American investors are invited to join the economy of NM with real projects that fit the economic and industrial clusters that are decided upon by private and public groups statewide.

v New money is brought to NM via insurance, Real estate investment trusts, and state and private retirement funding groups that are lured here with interests in revitalizing the state…they bring their corporate headquarters and are taught about the investment needs of NM in general. These groups become the real economic development partners with the other venture capital needs of the new-existing corporations in the state. Bring the venture capitalists to the state.

v NM demonstrates that it has the educated workforce that will manage almost any of the cluster industries that are targeted by statewide economic development programs. (electronics, biotechnology, mining, agriculture, aero-space etc). This is spearheaded by our local community colleges and universities in the state whose funding should be based upon their support of such efforts...

v Rid NM of compensatory taxes all together…

v No more gross receipts taxation

v Higher sales taxes that might be 8 percent or more…

v Maintain low property taxes using TABOR referendum to do so. (See below).

v Taxpayer Bill of Rights for NM - A cap (TABOR System from Colorado) on income tax beginning at 4 percent with only cost of living increases unless they go back to the citizens for the tax increase agreement. This has the affect of making legislators live within the budgets and curtails, does not eliminate, the pork game, and keeps the citizens involved in the debate.

This is a five part program that will limit spending and growth for state and schools to the rate of growth in inflation, plus population growth. Two, similarly the growth in spending by counties and municipalities would be restricted to their own growth in population and inflation rate. Three, any increase in property, sales, franchise or other taxes at the state and local level would have to be approved by referendum of the people. Spending limits can be exceeded but only by emergency and a two-thirds majority vote in each house of the state legislature to approve the emergency. Four, any program to borrow money for local or state funding would require the approval of the taxpayers. Five, An emergency fund would be established for stabilization. State and local governments would be required to establish emergency funds of 3 percent of their total annual expenditures and a budget stabilization fund of between 4-15 percent of their total annual expenditures. All excesses each year in any of these tax programs would be refunded to the tax payers.

Without dramatic change in NM we will have undisturbed continuance that leads to the “Ozymandias" syndrome. Remember? It was Shelly who first reported this syndrome in his now famous poem alluding to Egyptian Kings…it goes like this:

I met a traveler from an antique land

Who said: "Two vast and trunkless legs of stone

Stand in the desert. Near them, on the sand,

Half sunk, a shattered visage lies, whose frown,

And wrinkled lip, and sneer of cold command,

Tell that its sculptor well those passions read

Which yet survive, stamped on these lifeless things,

The hand that mocked them and the heart that fed.

And on the pedestal these words appear --

"My name is Ozymandias, king of kings:

Look on my works, ye Mighty, and despair!"

Nothing beside remains. Round the decay

Of that colossal wreck, boundless and bare

The lone and level sands stretch far away."

We have a bully governor who is heading in this direction. Here is how it might sound if he does not turn the ship of state around. “My name is Bully Richardson, King of Kings for taxation: look on my shell game works, ye mighty taxpayer, and despair! Nothing beside remains. Round the decay of that colossal wreck of state, boundless and bare the lone and level BLM sand stretches far and wide.” For if he really cared about people he would not raise one more tax, but rather lower every one and shrink the government now before it is too late.

Without a new model of economic development for the developing state of NM, there is little hope that citizens will see any results from current efforts. Moving the chess pieces around on the table will not create a new game. Unfortunately, this is the shell game that we see from Santa Fe all too often in NM. NM needs to break the agenda from 40 years of leadership that has prevented the state from growing economically. This should be a bipartisan work plan for NM. It is simple, we elect people who are committed to free market economics and limited government. Economic freedom does not come easy when socialism and the domination by government have created a culture of acceptance and inaction. John Stuart Mill understood this when he said:

“A man [or woman] who has nothing for which he is willing to

fight—nothing he cares about more than his [or her] own

safety—is a miserable creature who has no chance of being free,

unless made and kept so by the exertions of better men [or women]

than himself.”

Now is the time New Mexico, now is the time for effective economic public policy. The new vision is clear; the transformation needed is understood…what must follow is action. There is little hope for the satisfied man or women.

Thank you very much for your time and patience. I will be happy to answer your questions.

This article, from the New Mexico Independence Research Institute staff, fellows and research network, is offered for your use at no charge. NMIRI Syndicate articles are published for educational purposes only, and the authors speak for themselves. Nothing written here is to be construed as necessarily representing the views of NMIRI or as an attempt to influence any election or legislative action. Please send comments to: Editor, NMIRI 2401 Nieve Lane, Las Cruces, NM 88005. Phone (505) 523 8700. We do request attribution be given to both NMIRI and the author when the article is cited.
e-mail is galdridge@zianet.com.