Providence Journal: For Rhode Island, a lesson in Mass. company’s move to China

February 4th, 2011
By Kate Bramson

The closing of the Evergreen Solar plant in Massachusetts, which cost jobs and taxpayers’ money, offers economic-development lessons for new administrations like Governor Chafee’s that are trying to reduce chronic unemployment, national experts say.

States shouldn’t pin all their hopes on one company, particularly those that are likely to be lured away by overseas incentives, the experts say. Instead, they should spend their resources on helping small businesses create jobs in specific clusters that play to the region’s strengths.

They should also recognize that if states offer incentives, they must write “clawback provisions” that allow them to recoup their investment if efforts fail, the experts say.

“If you think you’ve got a particular advantage in a cluster or special industry, grow that cluster but in a way [that] you benefit lots of companies, small companies,” says Greg LeRoy, executive director of Good Jobs First in Washington, D.C., a national research center that promotes accountability in economic development.

Evergreen Solar, a Marlboro, Mass.-based manufacturer of solar panels, announced last month it would shut down its facility in Devens, off Route 495, lay off 800 workers and move production to China. Massachusetts officials had hoped what they say was a $31-million package of grants, tax breaks and other incentives would keep the plant humming. But China lured the company away with even greater financial incentives.

The state was able to recoup about $13 million from that incentive package, according to the Massachusetts Executive Office of Housing & Economic Development. That’s a loss of $18 million for the taxpayers.

Evergreen’s closing caught the attention of local and national public officials who are crafting strategies to end a long economic slide.

Chafee, who took office four weeks ago, is developing a strategy to pull Rhode Island out of a 22-month stretch of double-digit unemployment. In December, the rate was 11.5 percent, highest in New England and fifth-highest in the United States.

Creating sustainable new jobs is complicated, and states will need help from the federal government, says Robert D. Atkinson, president of the Information Technology and Innovation Foundation in Washington, D.C., who in 1996 was the first head of what was then the Rhode Island Economic Policy Council.

“First, the idea that states can fight and win the competitiveness battle on their own is simply wrong,” Atkinson says. “Unless Washington gets in the game, it will be very hard for states to grow their economies.”

Atkinson says China’s manipulated and undervalued currency plays a role, giving that nation an immediate 40-percent economic advantage.

LeRoy, too, speaks of the complexities for today’s leaders as they hope to turn their economies around.

“Despite the high, persistently high unemployment, I would urge them to try not to think there’s some silver bullet, some magic wand,” LeRoy says. “If there’s a silver lining to the economic distress, right now, and the fiscal distress resulting from the fiscal downturn, this is an opportunity for them to go back and really look at the dollars spent on economic development.”

He says states working on a cluster strategy should ask where the weaknesses are in the cluster. If finding the right workers for available jobs is a weakness, a state might realize it needs to improve its vocational-education offerings to train more people in particular skills or degrees, he says.

“That way, the benefits of what you’re doing benefit dozens of companies instead of one,” he says. “So if any one company fails, the investment isn’t lost. The infrastructure will still be there.”

Although Evergreen is a high-tech company, Atkinson says, its production process and technology were “actually relatively straightforward,” which made the overtures China made to lure the company appealing. However, China remains a nation with very low levels of education and skill, Atkinson said.

Knowing that, Atkinson says, Rhode Island must focus on innovation-based enterprises that require technical capabilities and skills beyond what China offers, the kinds of companies that wouldn’t go there because what the companies need doesn’t exist in China.

In Massachusetts, state Sen. Jamie Eldridge says one of the lessons Massachusetts and other states should take from Evergreen Solar is that “the mistake was to pin all of its hopes on one company.”

The subsidies Massachusetts offered were just too large, and the negotiation too weak, he says. Eldridge is a cosponsor of legislation to allow the state to recoup more from future deals if they go sour. But even more so, he says, states must recognize that the companies they want to attract will be lured by an educated work force, solid infrastructure and investments in higher education, and not by “a very large tax break.”

In announcing his company’s plans to close the Devens facility, Evergreen Solar’s president and chief executive officer Michael El-Hillow said in a statement that solar manufacturers in China “have received considerable government and financial support.” And even though production costs in Devens are “lower than most Western manufacturers,” he continued, “they are still much higher than those of our low-cost competitors in China.”

As many countries aggressively chase the kinds of jobs Evergreen is promising, LeRoy and his agency are looking ahead with caution.

“We think Evergreen is not an isolated story, we suspect, over time,” he says, “the glaring lesson is: make sure you write a good clawback.”

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