Using public funds to try to launch a genomics and biotech industry in Arizona is not the most effective use of taxpayer money for economic development, according to the author of a new study released today by the Goldwater Institute, a Phoenix-based think tank.
In a study called "Assessing Arizona's Economy-Boom or Bust?" author Robert Franciosi said low taxes and low regulatory burdens are the only proven ways for government to promote long-term economic growth.
The Arizona Legislature has agreed to provide $30 million over 10 years to attract the headquarters of the International Genomics Consortium to Phoenix, hoping it will serve as a foundation for the state's emerging biotech industry.
It is part of a package of $120 million in public and private money to support the consortium and set up the related Arizona Bioscience and Biomedical Institutes.
But there is no evidence that such public "industrial policy" is very effective, Franciosi said.
"In general I think it's unfair to tax companies that are already here to try and lure the latest new thing," he said. "Why tax the successful to bet on the dark horses?"
The report also takes shots at the conventional wisdom about other aspects of Arizona's economy, including oft-repeated complaints that the state's economy is too heavily dependent on construction and other low-paying jobs and that the state does not attract enough well-educated newcomers.
The state's economy is almost as well balanced as the national average, and Arizona exceeds the national average in the growth rate of residents with college and advanced degrees, the study said.
The greatest economic disparities are among regions within the state, the study said. The county with the fastest income growth during the 1990s-Coconino-grew three times faster than the county with the slowest income growth-Pinal. Franciosi said the best way to promote economic growth in slow-growth areas is to improve transportation and communication links and develop local resources such as water systems that would support larger populations.
"There is evidence that people like to live in mountain and Western communities, but they need transportation to larger markets and they need water," he said.
Overall, personal income of Arizona residents was only 89 percent of the national average in 2000, but there are reasons for that gap that cannot be easily overcome by government programs, the study said.
Part of the reason is that newcomers are willing to earn less here to live in a state with a high quality of life, Franciosi said.
The issue of education levels and its impact on incomes needs more study, he concluded. While Arizona has been "furiously producing college graduates," it also has attracted a large number of newcomers with less than high school educations. So while the number of those without high school diplomas dropped in the United States during the past decade, the number actually went up in Arizona.
"It is unclear why this growth at the lower end has occurred," the study said. "Possible culprits are the school system, the labor market, or our proximity to Mexico. Until more about this phenomenon is known, government policies run the risk of spending large amounts of money and missing the problem entirely."
Overall, Arizona added 1.5 million people in the 1990s, a 40 percent increase, suggesting that Arizona continued to offer economic opportunity and an attractive quality of life, the study said.