How Your Greatest Strengths Can Become Your Weaknesses: Lessons From the Mountain States

Economic performance varies across U.S. regions. That is the message from Economy.com's most recent regional economic outlook, which was discussed in yesterday's ED Futures (January 22). A headline story in today's New York Times describes the variation among states within the same region. The story talks about four states in the Mountain region: Colorado, Utah, Montana and Wyoming, and their struggles to regain an economic foothold.

In recent years, both Utah and Colorado have seen significant population and job growth. Montana and Wyoming remain sparsely populated and developed places. Utah and Colorado have suffered considerable job losses due to cutbacks in the high tech sector and a drop-off of tourism--both were growth drivers in the 1990s in the two states. Looking with envy upon their neighboring states' economic success, Wyoming and Montana were planning to pump-up their economies with new ED strategies just as the recession began to take hold in early 2000. Both states wanted to build on their traditional economic strengths in tourism and natural resources while grabbing a piece of the technology sector, which grew briskly throughout the last decade. As they say, timing is everything.

Dr. Sung Won Sohn, chief economist for Wells Fargo Bank commented in the Times article, "Colorado currently has one of the weakest economies in the country after having one of the best only two years ago." Gov. Michael O. Leavitt of Utah described 2002 as "the toughest year for Utah's economy since 1954."

By 2000, Colorado, with 4.3 million people, had an all-time low unemployment rate of 2.8 percent. Utah, with 2.2 million people, had a near-record low jobless rate of 3.3 percent. But as the downturn swept across the country, the two states' greatest strengths were about to become their greatest weakness.

Since 2001, Colorado and Utah have lost nearly 60,000 jobs combined, most of them in the region's backbone industries of high tech, telecommunications and transportation. With far fewer people, Montana and Wyoming struggled without much success to diversify their economies. Now that failure has had its bright side, allowing them to escape severe misfortune

And so goes the story of how our greatest economic strengths can turn into our biggest challenges. In my estimation, all four states, as different as they are, need to work on building diversified economies with stronger global ties. Once again, we find an example were it pays to keep your growth options open and avoid becoming overly dependent on any particular industry sector for growth. The question is: "Can we accomplish these economic goals in the short run, given the high level of risk and uncertainty that exists across most of the world?"

Another important lesson illustrated by the Times article is that national and global events have a major impact on state and local economic performance. Economic developers will need to pay closer attention to these "big picture" events and how they shape current and future growth prospects.

What If We Go to War With Iraq?

Let me close this article by opening another "can of worms." How will state and local economies across the nation fare if we go to war with Iraq? For that matter, what effects will such a war have on local economies across the world? More and more, that is the key question we need to ask.

In my assessment, industry mix is a driving issue in understanding the path that change will cut through local economies. This suggests that economic development organizations need to sharpen their industry intelligence. On the surface, we are prone to look at the economic effects of the war issue in terms of increased defense spending and which industries and geographic areas directly benefit from that increased spending. That is a valid perspective, but it does not give us a full answer to the question.

There is another perspective, which relates to the psychological and socio-cultural impacts of a war or major military conflict. Very simply, war makes everybody nervous--even the hawks. Will a war with Iraq increase or decrease perceived risk and uncertainty in the world? At first glance, I think many people tend to see a potential war with Iraq as creating greater uncertainty and risk--at least in the short run. Some would argue on the other side that the war, if successful from the U.S. and its allies' standpoint, could reduce risk and uncertainty caused by terrorism in the long term. Let me ask you the question: "What do you think?"

Then, there is always the question of how much will a war with Iraq cost us? If you are a holistic thinking, you will answer this question with another question: "What type of costs are we talking about?" Moreover, what benefit is produced by these costs? These questions take us back to the late 1960s and early 1970s when everybody was talking about the "price of peace." Did we ever learn anything from that period in our history? I sincerely hope so.