What Economic Challenges Will Oregon’s Next Governor Need to Tackle?

Sander Gusinow/Joan McGuire
Dr. Thomas Potiowsky, chair of the Economics Department at Portland State University

Portland State University economist talks about Oregon’s economic present and future

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With polls in the Oregon Governor’s race showing a tight contest between all three candidates, there is a high degree of uncertainty surrounding who might be next to sit in the Governor’s mansion.

Regardless of who wins in November, the next governor will need to address several economic realities facing Oregon’s economy.

Oregon is child care desert. Intel decided to build its newest factory outside of Oregon. Portland, the state’s largest city, has been unable to attract the same share of incoming business to the West Coast as cities like Denver, Seattle and San Francisco. And Gov. Kate Brown’s directive to state agencies to set more aggressive carbon emissions standards has been criticized by two of Oregon’s three gubernatorial candidates.

Dr. Thomas Potiowsky, chair of the Economics Department at Portland State University and former chair of the Northwest Economic Conference, discusses what issues are currently impacting Oregon’s economic growth, and what Oregon’s next Governor will need to look to secure the state’s economic future.

This interview has been edited for length and clarity.

What are the biggest economic challenges facing the next Oregon governor’s administration?

One of the largest challenges is really the urban and rural divide issues. They are not the same issues and they have to be addressed differently. In the rural are,a you still tend to have concentrated businesses, so that anything happens to those few businesses, it’s devastating, as opposed to the more diverse set of businesses we have in the metro areas.

But for the metro areas I think the big issue is crime. This is not unique to Oregon. It’s pretty much a national problem. But it needs it needs to be addressed because it has economic consequences.

If you’re a business in an urban area, your insurance rates go up. Theft means all your costs of doing business go up, besides your windows being broken. But you also have to be careful on that. We’ve had racial profiling occurring by the police. So it has to be taken care of correctly.

We must figure out why this is happening, rather than just saying, “Yeah, we got a lot of crime, so what we do is we hire a lot more police and crack down.” That’s how you solve it in the long run.

In Oregon, we take a look at best practices. It’s important to address the crime but also the underlying causes of crime. It starts as early childhood development.

After the Oregon Legislature failed to pass cap-and-trade legislation, Gov. Brown directed state agencies to set emissions standards to reduce carbon emissions. Currently, Oregon is a leader in renewable energy development, ranking seventh in the country for total renewable energy production, but 33rd in the country for energy production overall.

As least two of Oregon’s gubernatorial candidates have been outspoken against Brown’s environmental protections. How could a new governor affect Oregon’s status as a clean energy leader?

Because of our natural resource position, Oregon was doing hydro power before anybody thought about green energy. We started doing these measures, and that has given us a leg up. We have made steps with wind energy and solar, and I’m worried that we may get off that trajectory.

I think the move away from carbon is an inevitable move. We could be a leader, truly, in that area. And there would then be people who would look to us for how to do it. That will mean jobs for us. Definitely. Not only here, but firms here will go into other places and help other states and regions to do things to be greener.

So I am very worried about a governor who could take that away.

Every county in Oregon continues to be a child care desert. Do you consider that to be a problem that needs to be addressed by Oregon’s next administration?

Once again, I think that’s more of a national issue. My hope was that as the pandemic starts to wind down there’ll be more willingness for the daycare workers to go into that line of business. Because I think it’s more of a shortage of a workers situation for these for these places. And, of course, these child care places will have to pay more.

But if they have to pay more, then it costs more to put your child in day care. It’s a catch-22. It’s not as though the demand is huge. It just seems huge because it’s relative to the supply available.

We have a tight labor force. We had a lot of people leave the labor force during the pandemic. And the low unemployment rate is partly a consequence of the fact that the supply of labor has been less. I think the fear of people getting COVID is dropping. And at the same time, people are taking the look and saying, “Well, I dropped out of labor force. But hey, I’m hearing some pretty good wages are out there. And so maybe this is a good time to get back.”

Slowly but surely, we’ve seen the labor force participation rate has been rising. I don’t think it’s back yet to where it was before the pandemic, but it has been moving in the right direction.

Where do you think Oregon stands when it comes to attracting businesses here?

I think that the Intel decision to open up a new factory in Ohio rather than here opened up the Band-Aid on the wound, so to speak. It got people to say, “We’ve been telling you all along we’ve had problems attracting businesses here. And here’s a really good example of one of the problems.”

I think it got us to take a more introspective look. Do we need to look at possibly change some land use regulations? Is it a workforce issue? Is it our taxes? To what extent are we a welcoming place to do business?

When you look at the business taxes that Oregon has, and it is really not, horrible. We have instituted the CAT, the Commercial Activity Tax, two years ago, but that’s actually fashioned after the CAT from Ohio.

We need to also look at our development arm. At Business Oregon, that’s supposed to help everybody come in here. There’s always been a claim that the organization has tried its best to reach out for new businesses coming in and ignored existing businesses expanding here. Not totally ignored, but not quite paid attention to them either. Companies are starting to say to the state, “Well, once you were here, it’s like, do you think we’re going to stay here forever?”

Intel’s probably played that game better than anybody else.

How do you think Oregon’s business environment stacks up against regional competitors? Is there anything that Oregon needs to be doing better to get a bigger piece of the West Coast economic pie?

That’s a tough game to play. You don’t necessarily want to be in the race to the bottom. Once you start handing out tax credits and cutting business taxes, then the next jurisdiction that says, “I’m going to get that big company to come in here instead so I’m going to cut mine.” Then businesses just play the regions off against each other.

It’s a slippery slope. Cutting environmental regulations is also part of being in that “race to the bottom.” I think you have to look at your land use zoning, and try to see is there a way we can balance environmental protection needs against expanding of business needs.

We also need a well well-educated workforce. That’s another way we attract and keep companies, especially when we do the tech area. But Oregon State is probably the only known engineering school, and they probably don’t produce enough in to satisfy the needs of tech companies.

I know other people will come back and say, “why don’t we have oh, Washington State or even Michigan?” They’ll train all those engineers, and we’ll say, “hey, come to a beautiful place to live Oregon. And we get them for free.”

But I don’t think that I don’t think that’s sustainable.

How can our education system shift to become a more attractive place for a company to develop a workforce?

At Portland State, I tried to advocate for a program that combined computer science with economics. You hear a lot about big data, and I thought it would be a wonderful combination. One thing other universities are doing already, but we don’t quite do here, is combining economics with computer science. The computer science people can say, “Here’s all the big data, we can arrange it any way you want to.” And the economist says, “Here’s what you can do with it.”

Academics aren’t necessarily computer wizards who can assess all the data, but they can say not only what to do with the data, but what data don’t we have that we might need to grab.

I think we universities are slow to these things. Almost like they’re very, they’re late comers to finally coming around to making changes.

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