Pa. offers lessons on attracting, keeping industry

THE BALTIMORE SUN

The wooing of Berg Electronics Inc. was orderly, urgent and overwhelming. James Moyle had never seen anything like it.

Berg, Mr. Moyle's St. Louis-based company, was thinking about building a big Pennsylvania factory. Pennsylvania officials responded like commandos on a mission, not the bureaucrats that, in fact, they were.

They gave Berg nearly $1 million for construction and job-training earlier this year. They lent $4.75 million at a bargain rate. They lobbied legislators to approve another $7 million loan.

They rammed through more than a dozen permits for roads, sewers, waste treatment, construction, electricity and environmental matters in two months -- "record time," said Mr. Moyle, Berg's financial vice president. The bureaucrats worked so hard that Berg's own development team became, he said, superfluous.

Berg's new cable-connector plant will open next year in Pennsylvania's Huntingdon County, south of State College.

It will employ 500 people. It will pay them well over $10 an hour.

Such factories aren't supposed to end up in places like Pennsylvania these days. Taxes and wages are too high, conventional wisdom says. Unions are too entrenched. Alabama gets all the good manufacturing jobs. Or Indonesia.

In fact, Pennsylvania has done a much better job than most Rust Belt states of attracting and keeping high-paying factory jobs, the kind of employment that has anchored the Northeast's economy for more than a century.

The Berg deal is one example. Coca-Cola USA's decision last week to build an 80-job syrup plant near Allentown is another. So is Sony Corp.'s announcement last month of a 500-job TV-glass factory near Pittsburgh. And Bush Industries' decision earlier this year to build a 600-job furniture plant in Erie.

Pennsylvania's experience, economists said, offers lessons to a certain other high-tax, high-cost, union-friendly state to its south by the name of Maryland.

Pennsylvania "has been pro-active, much more involved in dealing with the challenges of economic development than many of the states in the Northeast," said Robert Koepke, professor of geography at Southern Illinois University and editor of Economic Development Review, a quarterly journal. "They're making a real difference. It's not just political window dressing."

Prompted by loud and numerous calls for change, the Glendening administration is revamping Maryland's economic policies. Agencies and business people are working on a strategic plan, due this fall, that will set economic development direction for at least the next four years.

The planners could do worse, economists and development experts said, than study what's going on in the next state north.

"The fact of the matter is that Pennsylvania's booming," said Michael Conte, director of the Regional Economic Studies Program at the University of Baltimore. "They have all these financing programs. . . . Pennsylvania has really been in the business development business for like the last 10 years."

Pennsylvania is still losing factory jobs, shedding 10 percent of its manufacturing employment in the five years that ended in 1994. But it is losing them at a slower rate than every other Northeast state except Vermont.

Maryland lost 14.7 of its manufacturing jobs in that time. New York lost nearly one-fifth of its factory work, a huge decline.

If factories had fled Pennsylvania at the rate they vacated New York, Pennsylvania would have 100,000 fewer manufacturing jobs today than five years ago.

Strong factory base

Partially as a result, factory work makes up 18 percent of the job base in Pennsylvania. New York's economy is only 12.2 percent manufacturing; Maryland's, 8.3 percent.

The lesson from Pennsylvania, economists said, is not that high taxes and high costs don't matter to businesses. They do. Led by its new Republican governor, Tom Ridge, Pennsylvania cut its corporate income tax rate again this year to 9.99 percent -- down from 12.99 percent several years ago. Maryland's corporate rate is 7.0 percent.

Instead, Pennsylvania seems to show that geography is not destiny, that there's more to development than taxes and wages, and that good economic development by government can make an important difference.

"We're not a low-wage state, and we don't pretend to be," Pennsylvania Commerce Secretary Thomas B. Hagen said in an interview. "But hopefully, we are a more productive state. And hopefully, we are going to be the easiest state to deal with."

For one thing, Pennsylvania spends more money than neighboring states to lure and keep businesses. It's a controversial topic. Critics argue that tax credits, grants and bargain loans like those granted to Coca-Cola and Berg are corporate welfare that undermine states' fiscal health.

But they're a fact of economic development. One reason Maryland lost a Starbucks coffee plant last year to a site in York was that Maryland couldn't match Pennsylvania's $13 million incentive package, state officials said at the time.

Superior incentives also helped Virginia win Solarex Corp.'s solar panel plant in June -- even though Solarex's headquarters are in Frederick.

To try to compete, Maryland this year boosted its "Sunny Day" development fund from $4 million to $20 million. Pennsylvania set aside $25 million in Sunny Day funds this year and has budgeted $20 million for next. But even those amounts are small compared with Pennsylvania's total pool of more than $250 million for business development loans and grants, considered one of the biggest in the country.

Pension fund investment

Pension money is another source of development leverage. Pennsylvania's state retirement fund is increasing its investments in small-business, venture-capital operations in the state to 2.0 percent, or about $260 million, by 1999. The Glendening administration is considering a proposal to boost local venture-capital investment by Maryland's retirement fund from less than $20 million to something on the order of $340 million, or 2 percent of its assets.

"Maryland's pension funds haven't been as willing to put as much money into seed capital as Pennsylvania has," said Walter H. Plosila, who has worked in economic development in both states and now is executive director for the North Carolina Alliance for Competitive Technologies. "Overall, what Pennsylvania's done is build a more entrepreneurial culture."

Incentives only a start

But while financial incentives are important, development experts say, you can't bribe a company into your state if other conditions aren't right.

"The growing realization in the field is that incentives are only part of the game, and probably not the biggest part," said Mr. Koepke.

User-friendliness may be what Pennsylvania's Commerce Department is best at. For years, the department has had what's now called an "action team," a special squad of three dozen development specialists who trouble-shoot problems for existing businesses and craft deals for new ones.

The team often performs tasks that ordinarily would be handled by private consultants or real estate developers, Mr. Conte said.

"Pennsylvania is a classic example of hand-holding," Mr. Conte said. "They really hold people's hands and walk them through what is an extraordinarily complicated set of state agencies. Everyone I talk to says that's more important than the money."

When Coca-Cola considered the Allentown site, Pennsylvania developers "were very responsive," said Thomas Blackstock, Coke's vice president of manufacturing. "When an issue came up and they said they'd get back to you by next Friday, they'd live up to that."

Maryland is considering setting up an "economic strike force" similar to Pennsylvania's action team that would respond to major development opportunities.

But Pennsylvania isn't just good at new deals. "In Pennsylvania, the emphasis is on existing industries. What can we do to help our existing companies prosper?" said Steve Kusheloff, who runs economic development for 11 counties north of Harrisburg.

And the state doesn't just pay tribute to the mega-operators, either. "Pennsylvania really excels in the middle market," Mr. Conte said. "The $50 million company instead of the $500 million company. That's really the backbone of the state's infrastructure. That's really where we [in Maryland] have had our pants beat."

One acclaimed boost for small business is Pennsylvania's Ben Franklin program, which over the years has applied hundreds of millions in state money to university-driven technology improvements for manufacturers and other companies.

Concentration of effort

"The state of Maryland has lots of different programs [for technology transfer], but none of them get any significant amount of money to make any difference," said Mr. Plosila, who once was deputy commerce secretary in Pennsylvania. The Ben Franklin program, he added, "has helped build these companies up incrementally. You don't have the headlines of a recruitment, but over the long run it has changed the economy of the state."

The Franklin program stretches back to the administration of Richard L. Thornburgh, who left as Pennsylvania governor in the mid-1980s.

Its longevity underscores another point about Pennsylvania's economic policy: It has been relatively constant. Maryland business people often complain of the state's changing business regulations, procedures, policies and goals.

In Pennsylvania, economic activism is "long-standing," Mr. Koepke said. "It runs through different governors. Why is one place different in that context? There is no easy answer. . . . They have realized they're not a Southeastern state. They have a different history and different needs."

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