Maryland's stagnant economy [Editorial]

The latest report from the U.S. Department of Commerce reveals that Maryland's gross domestic product or GDP, a primary measure of the economy's health, was unchanged in 2013. That zero growth rate caused Maryland to be ranked second to last among all 50 states for GDP growth last year, an abysmal showing by any standard.

The news will likely be cheered by only one group, the Republicans running for state and local office who have been lambasting Maryland's allegedly unfriendly business climate and tax increases since the last economic recession for driving everyone from small business owners to retirees away. Their remedy? Reduce government spending and lower taxes.


Yet the irony here is that reduced government spending is exactly why Maryland's GDP fell so low. The anemic economic performance was chiefly the result of a downturn in federal spending. That's why neighboring Virginia, the state (and potential competitor in the region) most often cited as having a business "friendly" reputation and lower taxes, performed scarcely better, weighing in with a growth rate of 0.1 percent.

That's right, a tenth of a percentage point was all that separated the GDP growth rates of Virginia and Maryland last year. That's it. The result was even worse for the District of Columbia where federal spending accounts for an even larger share of the economy — GDP there actually shrank 0.5 percent in 2013.


Which state did even worse? That would be Alaska where the gross domestic product decreased a woeful 2.5 percent last year. But that wasn't the fault of Washington or Juneau — or any action by government of any kind — but appears to be simply because of a downturn in the North Slope mining industry.

Of course, it's always easier to view any economic news through the lens of a political persuasion, particularly for those who blame government whenever the results are bad. Critics might respond to the reality of public sector losses that Maryland is simply too dependent on government for its economic lifeblood.

Still, that's a bit like blaming Alaskans for being dependent on their abundant natural resources, mineral and other. We can't change our geography: Maryland is always going to be located next door to the District of Columbia and thus linked to federal spending and federal employment. The same is true of Virginia.

To gaze across the Commerce Department's map of GDP activity shows no shortage of factors that have nothing to do with government. Drilling for oil in Western shale deposits has done wonders for Wyoming's GDP. Agriculture and forestry helped boost states in the Great Plains like North Dakota. That success simply wasn't available to states in the Northeast, which have neither the farm acreage nor the enormous forests of the West.

That's not to suggest there isn't a legitimate debate regarding the size of Maryland's government, the breadth and quality of services provided to its residents and the manner in which those services from K-12 education to public safety and transportation infrastructure are financed. Nor would it be wise for the state to leave unnoticed or uncultivated those sectors of the economy that are not directly tied to federal government spending. It doesn't take an economist to caution against the "putting all eggs in one basket" philosophy of job creation.

Yet a realistic view of Maryland's economy ultimately brings us to a question: What can the state do to preserve and foster high-paying jobs? Obviously, it is not merely to raise taxes and expand government. But it might involve a blended approach where a sector with enormous growth potential like cyber-security is cultivated not only by government-funded organizations like the National Security Agency at Fort Meade and Maryland's research universities but by fostering private investment and entrepreneurship, start-ups and business incubators.

Maryland ought to capitalize on what it does best, and a knowledge-based economy holds the greatest opportunities for growth. That's not necessarily a demand for lower taxes but perhaps smarter ones that encourage growth-oriented investment without compromising public education and the state's human capital. As the Commerce Department report also shows, low taxes don't necessarily translate into high growth. If it did, conservative Mississippi wouldn't have one of the nation's highest unemployment rates at 7.5 percent as of April while liberal Vermont enjoys one of the lowest at 3.3 percent.

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