The next economy's promise for Ohio

3/11/2010

IT can be hard to find good news in Ohio.

Foreclosure filings are at record levels. Income-tax receipts plummeted by 35.6 percent from April, 2008, to April, 2009, and the downward trend continues in 2010. Unemployment remains high: Toledo's jobless rate rose to 12.5 percent last year.

But this devastation is only half the story. Ohio is in a paradoxical moment: The present is painful, but the future could be promising. And in another paradox, its manufacturing heritage is part of the reason why.

The prerecession economy was driven by consumption, energy profligacy, and financial bubbles. The next American economy must be very different: export-oriented, low-carbon, and innovation-fueled.

According to the World Bank, exports make up only 11 percent of the gross domestic product of the United States, compared to 40 percent in Europe and China, 36 percent in Canada, 22 percent in India, and 16 percent in Japan. Only 4 percent of U.S. companies export. Fewer than 0.5 percent of U.S. companies operate in more than one country.

Ohio can lead the United States back into the export game. The state still manufactures what the rest of the world wants, including medical instruments, electrical machinery, and aircraft parts.

Brazil and China, two rapidly growing economies, are Ohio's third and fourth-largest trading partners. The state's seven largest metropolitan areas exported about $3.6 billion worth of goods and services to Brazil, India, and China in 2007 alone. Toledo is eighth among the largest U.S. metropolitan areas in export intensity — the percentage of a region's output that is exported overseas.

Low carbon is the second hallmark of the next U.S. economy. It could spark a production revolution in Ohio and other manufacturing states.

The transition to a low-carbon economy is fundamentally about markets and products. We will need new energy supplies, such as biomass, and new machines, such as wind turbines and the flexible solar modules pioneered by companies such as Xunlight.

We also will need new kinds of batteries, new kinds of cars, energy-efficient appliances, smart meters, and local food. All of these products could be designed, developed, built, and grown in Ohio.

The state ranked seventh in the nation for total green-technology patents from 1998 to 2007, with strengths in batteries, hybrid systems, and fuel cells. During that period, according to a recent report by the Pew Center on the States, the number of clean-energy jobs in Ohio grew by more than 7 percent, even as the overall number of jobs fell by 2 percent.

Creating products and services demanded across the globe, and those that fit with a low-carbon world, will take quantum leaps in innovation. Ohio already is gaining notice, attracting $46 million in venture capital investments in clean technology in 2008, more than triple the 2007 amount.

Ohio is in the top 10 nationally in science and engineering doctorates awarded, in academic research and development spending, and in small-business innovation research awards, according to recent National Science Foundation data.

We used to think we could divorce innovation from production, keeping the former here while we sent most of the latter abroad. But important innovations also emerge from the factory floor. Innovating more means producing more, and that production can occur in Ohio.

Ohio's job losses in manufacturing have been staggering. But manufacturing doesn't have to be a millstone. It can be a steppingstone toward the next economy.

This mind-set should drive Ohioans' policy decisions over the next year. It is not easy to raise spending on innovation or to vote for another $700 million for the state's Third Frontier program while pressing school districts and local governments to find more savings. But these hard choices will position Ohio for a stronger future.

The new “Restoring Prosperity” report from the Brookings Institution and the Greater Ohio Policy Center recommends 39 policies — from rebuilding physical assets to reorganizing work- force supports — that can help Ohio strengthen its footing in an export-oriented, low-carbon, innovation-fueled world.

Just as important as the policies is the underlying message: Even as this economy falters, Ohio could benefit from the economy that is emerging. Ohio's strengths are just as real and relevant as the current crisis.

Bruce Katz is vice president and director of the Metropolitan Policy Program at the Brookings Institution in Washington. Lavea Brachman is co-director of the Greater Ohio Policy Center in Columbus. They are co-authors of the new report “Restoring Prosperity: Transforming Ohio's Communities for the Next Economy.”