COVER

THE MASSACHUSETTS MIRACLE

IAN AUSTEN June 6 1988
COVER

THE MASSACHUSETTS MIRACLE

IAN AUSTEN June 6 1988

THE MASSACHUSETTS MIRACLE

Times were grim in the early 1980s for Taunton, Mass., as they were for many of the old industrial towns of the northern United States. For over a

century, Taunton (population 45,000), 60 km south of Boston, had been the centre of the U.S. silverware industry. But when foreign competition closed four of the six remaining silver works early in the decade, unemployment soared to about 14 per cent. And by 1982 things were so bad that Richard Johnson, a former city housing official, was swept into office as mayor because, he recalls, “nobody wanted the job.”

Now the picture is very different. With 46 new plants opened in the past six years in a local industrial park, Taunton’s unemployment has dropped to four per cent, in spite of a population increase of about 5,000. And although Johnson opposed Gov. Michael Dukakis’s re-election bid in 1983, he now credits the governor for most of that impressive turnabout. Said Johnson last week: “Dukakis made me a believer. He has no bigger supporter in the state now than me.”

Throughout much of Massachusetts, economic comebacks like Taunton’s can be found. Under Dukakis, the once-depressed state is now seen by some Americans as a national model for economic growth and reform of social programs. Dukakis, the social liberal who produced balanced budgets even before state law made them mandatory, has made the socalled Massachusetts miracle the centrepiece of his presidential bid.

Credit: While many of the factors that produced the comeback were clearly beyond his control, even some of his critics concede that much of the credit must go to Dukakis. Said Richard Manley, president of the conservative Massachusetts Taxpayers’Foundation Inc., a Boston-based think-tank: “He cannot take credit for MIT [the Massachusetts Institute of Technology] and Harvard being across the river in Cambridge. He probably cannot take credit for the defence industry being here. But he has done some good things that I have not seen anybody else doing.”

Massachusetts is a state with few natural advantages. Its energy costs are among the highest in the United States. Land transportation to the rest of the country is difficult and expensive. But the Boston area alone boasts 65 colleges and universities, an obvious asset in the so-called Information Age. In a study published this year, David R. Lampe, assistant director of the MIT Industrial Liaison Program, concluded that “knowledge has become Massachusetts’ most prized resource.”

Two factors have made that resource more valuable in this decade. Even before the Second World War, professors and students from MIT and other technical schools had gone on to establish defence manufacturing companies, including the giant Raytheon Co. That growth exploded in the postwar era as electronics became an integral part of weaponry, and the United States embarked on its space program. However, the winding down of space exploration and the Vietnam War in the late 1960s and early 1970s hit the industry hard. But it enjoyed a comeback when Ronald Reagan came to power in 1981 and began the largest peacetime military buildup in U.S. history, in which Massachusetts received a proportionately greater share of defence contracts than any other state. At the same time, another branch of the state’s university-linked electronics industry was starting to boom. The introduction of personal computers in office and home created an enormous demand for an entirely new range of high-technology goods. The Cambridge-based Lotus Development Corp., a major software company, drew upon graduates from the surrounding universities when it was established in 1982. Now the world’s largest independent producer of programs used to track accounts, the company boasted sales of $526 million

LISS/GAMMA-LIASION

last year-

Start-up: Although experts

do not give Dukakis credit for the electronics boom, he did aid the start-up of some of the new computer companies by easing access to funding and through some joint ventures. At the same time, he introduced numerous social programs to help Massachusetts workers adapt to the economic changes. According to Johnson,

Taunton offers evidence of the success of his policies. At the start of his second term in 1983 Dukakis gave special attention to neglected communities such as Taunton, to which—with key state officials accompanying him—he paid several visits to assess the city’s needs. Said Johnson: “It wasn’t like anything we were used to. He did not come here with his own plan. He came to give us the tools we needed to make things happen.”

Land: The result was a combination of programs: low-interest loans to allow the town to reduce land prices at its industrial park, joint ventures between the state and private corporations to start new projects, and grants to the city to improve its roads and services. Taunton also gained from a number of statewide social programs that Dukakis is now promoting as models for the entire country. The Industrial Services Program brings together the state’s smaller educational institutions with private companies to retrain laid-off workers such as Taunton’s silversmiths. Last year the plan retrained 11,000 laidoff employees, about three-quarters of whom found new jobs paying at least 92 per cent of their previous wages. Equally dramatic has been a Dukakis plan to offer skills training to welfare recipients. Dubbed ET (for education and training) Choices, the program pays volunteers transportation and child care costs while they return to school.

Welfare: In the past four years the program has cut welfare costs by about $194 million by giving full-time employment to 73 per cent of its 45,000 participants. But Teresa Amott, an economist and welfare specialist at the University of Massachusetts, says that the plan is not necessarily the answer for welfare problems in other regions. Said Amott: “They are probably the nation’s best training and employment programs for welfare recipients. But they also have the benefit of a labor shortage in Massachusetts. It would not work in West Virginia, foi example, because the jobs won’t be there at the end of the training period.”

Regardless of who gets the credit, unemployment statewide has dropped to about three per cent currently from 11.2 per cent in 1975. David Birch, an MIT economist and president of a private marketing firm, notes that Dukakis was helped by relatively flat population growth in the state. Still, he estimates that the governor’s policies have helped 100,000 people to find new jobs. Said Birch: “He deserves a tremendous amount of credit for that.”

Distress: To the evident distress of conservatives and many businessmen, Dukakis has also expanded the reach of government while contributing to the state’s economic growth. Recently, the state instituted a new state health care plan that is far ahead of anything else in the United States. And while the number of welfare recipients is down, the state recently increased payments by eight per cent to help the poor cope with a cost of living explosion—such as the 70per-cent increase in Boston housing costs—that has accompanied economic expansion.

Dukakis now faces what may be a troublesome review of the state’s current budget. After years of double-digit growth in revenues, the state is experiencing a $400-million shortfall. In the past, budget problems have proved critical for Dukakis. When he first entered office in 1975 he wiped out the state’s $525-million deficit through a massive increase in personal income taxes. Three years later the Democrats replaced him with another candidate for governor, and Dukakis spent the next four years lecturing at Harvard until he swept back into office in 1983.

Plans: Last week the state legislature wrestled with various plans to deal with the budget, which must by law be balanced. Many observers say that Dukakis should emerge relatively unharmed by a combination of minor

spending cuts and an increase in cigarette taxes. And although Manley of the Taxpayers’ Foundation labels Dukakis as a free spender, he acknowledges that the governor does not squander state funds to buy votes. Said Manley: “I see him do things I know the state cannot afford. And yet, even as a conservative, I know they are probably right.” For Vice-President George Bush, whose chief, Ronald Reagan, pledged to cut spending but instead added a record $1,650 billion to the deficit, Dukakis’s sound budget record will likely be major campaign challenge.

IAN AUSTEN

in Boston