Massachusetts (From Book)
“Taxachusetts”! State/local per capital taxes doubled between 1965 and 1971–third in nation behind New York and California. Between 1968 and 1971 state bureaucrats increased by 33000 to 268000. State energy costs were among the highest in the nation (dependent on oil in an oil crisis). Its textile industry shattered, leaving behind crushed local economies, depressed machine tool sectors, and empty factory complexes. A huge decline in federal contracts and competing increasingly in price sensitive consumer markets forced Route 128 firms to “continuously innovate”, and reduce costs—both impeded by the state’s hostile business climate. State taxes on the insurance industry inhibited that industry’s performing its then-honored role of serving as venture capital for new technology firms. An inability to attract key skills became a serious policy concern among Route 128 firms. Engineers needed to be recruited for the semiconductor industry; there were none locally—MIT did not offer semiconductor-relevant programs). Massachusetts was shooting its gazelles.
Massachusetts approved in 1971, formation of Massachusetts State Department of Communities and Development, headed by Atkins, former Boston City Councilman and mayoral candidate against White—he served in the Republican Francis Sargent’s administration (1969-1975). Arguably, under Sargent Massachusetts finally developed a true state/local IRB, overcoming the judicial and state reluctance to embrace direct financial assistance to private corporations. In 1971, the Industrial Development Finance Act which led to the formation of EDOs such as the Boston Industrial Development Finance Authority (1972). Finance Authorities similar to BIDFA issue tax exempt and taxable IDBs, Enterprise Zone bonds and participate in various other public-economic development projects. The state in 1978 created the Massachusetts Industrial Finance Agency (predecessor to the present MassDevelopment Finance Authority) to finance industrial projects, tax exempt bond financing for small companies and blighted downtown areas designated as commercial area redevelopment districts (CARDs) which have since evolved to be a core Massachusetts state and local economic development program.
Economic collapse goaded the “historically aloof business and banking community” into action. Its concerns cataloged in a 1972 pamphlet, “Look out, Massachusetts” (Bank of Boston’s chief economist, James Howell). The pamphlet urged tax reduction and incentives to stimulate business investment in much-needed plant and equipment (Lampe 8-9). Francis Sargent (Republican) made “Look out Massachusetts” an issue in his campaign, promising to triple investment tax credit from 1-3% and eliminate inventory tax. He won. Incentives were approved in 1973, plus $500 tax credit for hiring welfare workers. The legislature, beyond Sargent’s control, also approved anti-redlining legislation and consumer and environmental legislation that made Massachusetts a national leader—and a business pariah. Sargent’s successful efforts, however, brought him little popularity. The economy continued its spiral down. Unemployment (1974) was 50% higher than the national average reaching 11.2%. The state deficit topped one-half billion.
Time to elect a new governor. In 1974 Michael Dukakis, a “new breed” progressive, anti-business, ethnic Democrat from affluent Brookline and Harvard Law, was elected. Dukakis was a “child of Vietnam”. Not a Tip O’Neil labor union FDR Democrat; he belonged to McGovern’s wing–elected as an outsider to clean up the state. Confronting a deficit that threatened state default, he increased taxes (largest in state history), and put the “meat cleaver” to state programs, especially human service[i]. To address ED concerns (in 1975 Fantus ranked Massachusetts business climate as 46th of 48 states), he assembled his Development Cabinet, putting Lowell’s planning (and ED) director, Frank Keefe in charge—Keefe operated from the Governor’s Office of State Planning.
In August 1976 Dukakis released his “Economic Development Plan for Massachusetts“–with one hundred initiatives for controlling costs, and providing capital finance for firms. “Its greatest significance was that it made economic planning and development a clear responsibility of state government for the first time” (Lampe 11). Dukakis first administration, however, did not cultivate the business community. His first ED action blocked a Pittsfield developer from developing a mall in a suburb—“Forget about your development. We just won’t permit it” (Osborne 11).
In the meantime, his first administration attempted probably the most thoughtful coherent state-level CD approach yet devised. What followed from this initial approach, not at all what anyone expected, was that over the next decade a hybrid CD/ED state-level economic development system evolved, arguably one of the more sophisticated in the nation—and one of the very earliest.
Dukakis Capital Formation Strategy
Two strategies developed from the first term’s approach to ED/CD policy. “The first is … new financial institutions to promote economic development and the second is the governor’s strategy of geographic targeting” (Ferguson & Ladd 36). Central to both strategies was “Gap Financing” which became both a rationale and a tenet of “entrepreneurial state” financing initiatives. To start it off, Dukakis’s close ties with the “Wednesday Morning Breakfast Group” (led by Mel King, Boston’s most prominent neighborhood community organizer—two election opponent of Mayor White[ii])–WMBG was a who’s who of Boston’s black and progressive communities—which had recently blocked Interstate-95 expansion of the hated Southwest Corridor”. King urged the formation of a Capital Formation Task Force to inject capital into Boston’s ghettos. Composed of his ED cabinet and forty-one academics (our deindustrialization scholar, MIT’s Bennett Harrison served), WMBG members, labor officials, and business/chamber CEOs, the Task Force met through 1976 and issued a final report in January 1977.
The Task Force recommended a CDC/program (CDFC) to provide loans/equity finance to firms in low-income areas where conventional financing was unavailable. They proposed creation of three CDCs to provide “gap” financing in low-income, minority areas—in effect creating a CDC lending system restricted to EDZs. The money came from state-issue GO bonds. A CDC was created to help people navigate the complicated and nebulous process. The Task Force also recommended IRBs be restricted to distressed area commercial districts. Approved by the legislature, the legislation was not funded– the bottom line was nothing came from the Task Force except the concept.
As the Task Force deliberated, a parallel process, a second task force organized by the New England Governor’s Regional Commission, (NERCOM) met and proposed a Regional Development Bank and other policies to remove bottlenecks, “gaps”, in the capital and labor markets. The [Massachusetts’] insurance industry seeking relief from a crushing industry-specific tax, supported the NERCOM report (Ferguson & Ladd 40). WMBG, on the other hand intensely opposed any pro-insurance initiative. Yet, the insurance industry and Dukakis agreed to the industry’s formation of a Massachusetts Capital Resources Corp (MCRC) in exchange for removal of the tax. The insurance industry would fund MCRC (a private EDO, operated by the industry) $100 million to fund unsecured (mezzanine) loans to small businesses unable to secure financing elsewhere under affordable terms—gap financing. As of 2016, MCRC lent over $640 million dollars to 300 companies. Eisinger cites MCRC as the nation’s first state “Developmental Credit Corporation”—and interestingly the approved, but unfunded, CDFC as the nation’s first state “Venture Capital Corporation”, (Eisinger 250-1, Table 10-1).
Geographic Targeting
Dukakis, along with others, strongly believed the normal mechanics of the private capitalist market system “did not always produce socially optimum outcomes” (Ferguson & Ladd 46). To overcome these “gaps” in private market operations, government should target areas needing the greatest help (high unemployment, physical blight, and declining jurisdictional economic bases). Targeting included steering development from areas where additional development would produce unwanted consequences (sprawl). Dukakis administration geographic targeting was defined and implemented by his Office of State Planning (OSP). OSO launched (1975-1978), a “Growth Policy Process” and produced a 1977 report, “City and Town Centers: a Program for Growth”. Thirteen bills subsequently were approved by the legislature to carry forward its recommendations.
The core legislation, the 1975 Growth Policy Development Act, provided for, but did not require, Local Growth Policy Committees in each city and town. The committees would hold open meetings and develop a “statement” to be submitted to OSP. Review by regional planning bodies was included. “The consensus in the local reports was that the state’s policy should be to support and encourage growth in the state’s older cities and towns, rather than suburbs and outlying areas.” (Ferguson & Ladd 47). Two examples of the geographic targeting that resulted are the Lowell Heritage Park and the Siting of Public Facilities
Lowell Heritage Park: Keefe, Lowell’s former planning director, prepared the concept paper for what proved to be a Dukakis signature initiative: the Lowell Heritage Park. His concept paper “called for a state heritage park, “a historic theme park to preserve the historic canals and other structures that tell the story of the development of the textile industry in downtown Lowell” (Ferguson & Ladd 48). Dukakis loved the idea; his campaign manager/economic development department head (Alden Raine) solidified the concept into $10 million (state/federal) program that led to designation as a state park, and in 1978, a national park included the National Park Service portfolio. The Heritage Park proved an anchor for revitalized tourism and cultural museum. In the 21st century it has promoted architectural and historic preservation in neighborhoods adjacent to the park (Stanton).
Siting Public Facilities: Executive Order 134 (1975) required that moves/expansion of state facilities be within the central city. This reversed the previous public facility criteria which stressed such facilities be located “where the people are”—and where they are moving—suburbs. While the state had no formal decision-making power over location of local public facilities (new schools) the Dukakis team jaw-boned (“We did everything we could to retard the use of that money for … sprawl) locals. Thus a Lowell high school, adjacent to the Heritage Park, was renovated in lieu of a new school—and a bridge was built to link it to the park. North Shore Community College was located in the center of depressed Lynn instead of Route 128, and Roxbury Community College built on WMBG’s cleared Southwestern Corridor land. Depressed Fitchburg’s downtown got three parking garages, rehabbed commercial space, an expansion of GE’s industrial facility (now closed), housing developments, a transit terminal, and a park with jogger’s paths.
Dukakis Limps into the Election
At the last meeting of the Capital Formation Task Force in January 1977, Dukakis was invited to receive the final report. He arrived late, preoccupied, he left after a few minutes. The CEOs of two large technology firms, members of the Task Force, were infuriated—to them it confirmed the Dukakis administration unwillingness and inability to take the private sector and ED (as opposed to community development) seriously. Believing something had to be done with the Massachusetts business climate and unimpressed by the tangle of CDCs and bureaucracy created to implement CDFC recommendations, they organized other high-tech firms to press for tax reduction and business climate reforms. In that year the Massachusetts per capita tax burden was 11% higher than the national rate.
In October 1977 they announced formation of “Massachusetts High Technology Council” (MHTC). The Council’s membership by 1979 grew to 85 firms employing 140000. MHTC drew up a nonbinding ‘social contract’ promising 60000 new high-technology jobs, and an additional 90000 manufacturing and support jobs if the state would take ‘substantive’ steps to cut taxes and establish a ‘healthy’ business climate.” (Lampe 14). In 1980, the Council intensively participated in the massive and successful anti-tax Proposition 2 ½–regarded as being critical to its passage[iii]. The Council went on to become one of the nation’s premier technology councils—responsible for a good deal of that state’s reputation as a leader in various technologies.
In the gubernatorial election that followed Dukakis faced an internal rebellion within his Democratic Party—divided over budget cuts and “anti-business” administration. Edward King—who of all things was a professional economic developer—won the primary and subsequently the general election. During the campaign, Dukakis’s CD was pitted against King’s ED.
King’s career, as Massport’s (the state’s powerful Port Authority) comptroller (1959), than its CEO (1963) modernized/expanded Logan Airport (using urban renewal). Like all good ED CEOs, he got fired (1974). His next position was chairman of the New England Council, a multi-state Chamber, funded by private membership whose initiatives included resisting the Legislature’s anti-business environmental restrictions and lobbying the feds for a solar energy research center. In October 1977, King announced his gubernatorial candidacy as a pro-life and death penalty, pro-offshore drilling/nuclear power/solar energy, less business regulation, and sympathetic to Prop 2 ½. His bottom line ED position reflected in an interview: If you are anti-business, you are anti-people” (Ferguson & Ladd 50). King signed MTHC’s compact scaling down the war between the business and government that dominated the past decade.
The Economic Developer as Governor
In 1980 Prop 2 1/2 anti-property tax referendum was approved overwhelmingly. King presided over an administration that froze taxes and cut benefits, programs, and services. By 1987 the Massachusetts tax burden was 10% below the national rate. Dukakis fought against Prop 2 1/2. In its wake Prop 2 1/2 left a divided Democratic Party—this late fostered a Dukakis comeback. But first, the King Administration.
King hired economic developers who thought as he did. Byron Mathews (mayor of Newburyport) became his Secretary of Communities and Development, and his Secretary of Economic Affairs, George Kariotis was a CEO of a microwave manufacturer; Mathews bought into Dukakis’s Growth Policy Process. Under King, Massachusetts IRB issuance was limited to distressed areas, and levered with UDAG grants (the sole exception to this was Fenway Park luxury boxes). Mathews helped preserving HUD’s Small Cities Block Grant and his assistant, John Judge, designed the state’s small business program into a program that became a national model (Ferguson & Ladd 52). Dukakis’s Heritage Park program was continued. Yet, King’s very first action was to eliminate Frank Keefe’s Office of State Planning (King reportedly said “Planners are those who plan to see that nothing is done”). King, like all good economic developers, possessed a knack for alienating those around him. King (1) worked well with private state-level MHTC and MCRC, and created two mainstream ED state-level EDOs, the Mass Technology Park Corporation and the Bay State Skills Corporation.
Mass Technology Park Corporation (MTPC). MTPC was created to address gap between “innovation” and “commercialization”. King was prodded into action by North Carolina’s Governor Hunt’s Research Park initiative jumping into chip-making. Kariotis fashioned a bill (1982) with equal funding from private and public; competition from other states provided legislative votes. MTPC, whose board included academics, technology CEOs, and public officials, pursued three programs. The first set up CAD capacity/programs and courses in the state’s public and private university system. Secondly, six “clean rooms” were funded for job-specific/management training and experience for students. Finally, a shared clean room, centrally-located was set up to manufacture cutting-edge integrated circuits. Private funding exceeded the bill’s match requirements, and university acceptance of the initiative was robust.
Bay State Skills Corporation (BSSC): King’s signature ED initiative, the little-known Bay State Skills Corporation (BSSC) flowed naturally from MHTC’s need to find engineers for Massachusetts’ exploding tech industries. Kariotis turned to Northeastern University who proposed a public/private partnership whereby firms, if they paid 50% of the cost (the state the other 50%), Northeastern would found and operate a training center. The entity, a quasi-public EDO with public/private governance, was defeated by the legislature in 1980. King shifted money from his emergency fund to start the program immediately. In 1981, he reintroduced the bill, called technology industries “growth industries” and packaged it as an “educational” support program—it passed.
BSSC moved on to new target industries, including in its initiatives welfare recipients and displaced homemakers. In 1985 BSSC received a JTPA demonstration grant to develop BSSC into a national model. Dukakis would later link BSSC to his Center for Excellence initiative. BSSC became a national model, acting “as a venture capitalist in the training area, providing matching grants as a way to get corporations and universities to set up new training programs” (Osborne 206). Interestingly, Pennsylvania’s Ben Franklin Partnership and California’s MICRO program approved in 1982, a year after BSSC, followed a similar venture capital matching grant design. Skills training for key targeted industries was an early state-led ED strategy—a key incentive in gubernatorial business attraction.
Politicization
These two Democratic Administrations—night and day: Dukakis CD versus King’s more classical ED. King the more successful, had not repudiated Dukakis CD, but instead integrated it into his own, resulting in a hybrid state ED—CD economic development policy system. A shared feature of both, however, was heavy-duty politicization of state-level economic development. Other states where genuine two-party politics existed, resulted in partisanship as well as politicization. State level ED was, arguably, inherently highly politicized. ED/CD as a policy area was central to both Governors and prioritized. Dukakis chief economic developer was his campaign manager (Raine); he probably lost his renomination as much for his CD/lack of ED strategy as anything; King was an economic developer; Mathews was a former mayor and King’s ED Department Head, Kariotis, later ran for Governor (and lost). Later both King and Kariotis changed party affiliation. Planning departments were CD’s natural ally at the state level, and an impediment to more Privatist ED. No one would ever argue that municipal-level ED/CD was non-political—but state level ED/CD had politics, partisan/ideological politics at its core from Day One—even in a predominately one-party state.
Dukakis Second (and Third) Administration (s): 1983-1991
King exhausted his welcome within the Democratic Party. Dukakis returned to favor and was reelected to a second term (1982. The economic backdrop, however, had changed radically. These were the years of the so-called “Massachusetts’ Miracle”. Route 128 finally produced jobs and prosperity—Dukakis claimed credit for it. [Hindsight consensus asserts neither Dukakis nor King played a significant role in the Miracle]. Dukakis consistently opposed further Prop 2 1/2 tax cutting. But a vigorous public campaign, with MHTC still very much in the fray, continued urging restrained taxes, welfare and government payrolls growth. This was not going to be a warmed-over CD anti-business administration.
If Dukakis wanted things done, he had to change his style; negotiate and compromise, In regards to CD/ED, however, the same team was back in place (Raine and Keefe), and he returned to a CD stressing targeting distressed geographies. Dukakis incorporated the previous administration’s ED initiatives into his own. BSSC was sent a Dukakis Employment and Training Choices Program, offering training and jobs to women with children on public assistance. MTPC was pressured to build its integrated circuits center in a targeted area (Taunton’s) Miles Standish {Heritage] Industrial Park (he was unsuccessful). His MassBank initiative (a financing authority to fund infrastructure) also failed, but he crafted a compromise between labor and business on early notification of plant closings (firm notification was voluntary, but if no notification was made the state responded to assist displaced workers—ironically making it more charitable not to announce future closings). In 1984, the Office for International Trade and Investment was established.
Geographic targeting continued as important aspect of Dukakis’s CD strategy. Growth should be promoted by the state in areas devastated by deindustrialization. Five areas were demarcated as “Targets of Opportunity”. Southeastern Mass was really hard hit (Taunton) and he made it his chief target. Back in 1976 the state turned over to the city a closed-down mental institution for conversion into an industrial park. UDAG funds were used for infrastructure, and King in 1982 funded an interstate off-ramp. Taunton’s Miles Standish Industrial Park captured media attention, resulting in GTE moving in. During Dukakis’s two administrations, however, growth in the overall Target of Opportunity Program was slow. Something had to be added to targeting. In 1985 he pressed for Centers of Excellence whose purpose was for the state to create a “knowledge-based economy” to compete globally. The idea, initially proposed by Dukakis’s Secretary of Urban Affairs, Evelyn Murphy, in 1983 (a Commission on the Knowledge-Based Economy) went nowhere.
Centers of Excellence
Murphy pivoted from the Knowledge-Based Economy Commission and called for Centers of Excellence. Visiting each of his Target of Opportunity centers (six by 1985), Dukakis argued the state’s future economic success rested on developing and commercializing new technologies. A huge one-day conference expanded on the theme and enlisted a constituency to support it. The approach constituted a fundamental departure in the role of state government in that the State chose those technologies it deemed as critical for future growth—targeting went beyond geography into “sector-picking” for the state’s jurisdictional economic base. “Strategically important sectors” essential to future interstate and global competition were asserted based on academic studies. Targeting individual sectors within industries, however was another departure. The assertion growth in these industries was “knowledge-based”, yet another. Legislation was approved in 1985. The Policy World had developed the support necessary for the State’s targeting and sector-picking[iv].
Centers provided partial funding for partnerships between business and universities to develop commercial products in polymers, biotechnology, marine sciences, solar energy, and “advanced manufacturing”. The first round of grants commenced in 1986. Eligible activities ranged from incubators, applied research grants (SBIR-like), shared equipment, academic-business liaison programs, export marketing, technical education centers, and academic uses such as distinguished professorships and conferences. The Centers initiative relied on universities and formalized their role in a community (or economic?) development growth program. Incubators were intended to be “meeting grounds” between researchers, risk-taking entrepreneurs, students interested in a specific technology to be developed into a cluster that would spur that region’s future growth (Ferguson & Ladd 78).
Centers had two separate goals. “The first is to create the conditions that will introduce sustained growth of industrial clusters in the four targeted technologies and regions (emphasis added}. Each of the regions is already home to small concentrations of firms and research institutions in their respective technology. … The other major goal … is to build the state universities in these regions into integral components of their regional economies” (Ferguson & Ladd 78-9). It is not our intent to assert Massachusetts was “first on the block” to innovate knowledge-based economics, clusters, and sector targeting (it may be close) our point is that by the mid-1980’s the strategy was formulated, defined, approved, and being implemented in Massachusetts. The main outlines of a “Blue State” hybrid CD/ED state economic development policy system were in place by 1985.
Commission on the Future of Mature Industries
Textiles had gone down for the count, but much of Massachusetts’ older manufacturing still functioned. Hand tools, industrial machinery, paper, shoes, plastics, and clothing, mostly concentrated in western and southeastern cities and towns still employed over a half million workers. These mature industries were his Targets of Opportunity. The inspiration and drive for this program did not originate from business, but from labor and its allies in academia, and citizen groups like Massachusetts Fair Share (Ferguson & Ladd 65). The proposal had been pushed by labor during the King administration. The initiative served his larger political constituency, and complemented his negotiations on plant closing legislation. The initiative was a key element in his campaign platform—put there by the Mass Labor Caucus. In his second administration (1983) Dukakis formed his Commission on the Future of Mature Industries. There were many birds killed with this stone. The Commission served as recipient and administrator of plant closing notifications. No politician wants to receive, be forced to announce, and then be responsible for job losses. The thirty eight folks appointed to serve on the commission were charged with handling whatever “opportunity” there was in plant closings.
One initiative that emerged from the Commission was the Product Development Corporation, a public/private EDO that financed firms diversifying their product lines. Copied from Connecticut’s similarly-named EDO, pushed by the Labor Caucus and a key legislator, the entity was lodged under Evelyn Murphy’s department, and located in the umbrella Industrial Services Program. That program included a mélange of business assistance, workforce, and business retention monitoring programs. Workforce programs were directly linked to business assistance (i.e. traditional ED) programs under a common leadership. The intense pressure associated with plant closings had inspired greater coordination of preventive business assistance, inclusion of skilled labor and workers in decision-making, and JTPA Displaced Worker funds (Ferguson & Ladd 67-9).
See Department of Economic and Community Development and contrast MassDevelopment versus Governor’s Office
[i] While we relied primarily on R. Scott Fosler, also of help was David Osborne, Laboratories of Democracy (Cambridge, Harvard Business School Press, 1988), pp. 21-35
[ii] King ran a program in MIT’s Department of Urban Studies and Planning.
[iii] Eisinger attributes the MTDC’s (sic) formation to the first Dukakis administration, but observes that its initial capitalization came in part from EDA (as did NY’s and Utah’s); Eisinger, the Rise of the Entrepreneurial State, op. cit., pp 259-60
[iv] Eisinger reports that similar centers in some form were created during this period in New York, Michigan, Virginia, Ohio, Pennsylvania and North Carolina; Eisinger, the Rise of the Entrepreneurial State, op. cit., pp. 283-5.
Ron W. Coan 