On Dec. 14, Providence Business News Editor Mark S. Murphy sat down with six leaders of the Rhode Island business and nonprofit community to talk about 2018 and what it might mean for the state going forward. Joining Murphy at PBN’s offices in Providence were Washington Trust Bancorp Inc. President and Chief Operating Officer Mark K. W. Gim, Blue Cross & Blue Shield of Rhode Island Executive Vice President, General Counsel and Chief Administrative Officer Michele B. Lederberg, Providence College Dean of the School of Business Sylvia Maxfield, Gilbane Building Co. President and CEO Michael E. McKelvy, Crossroads Rhode Island President and CEO Karen A. Santilli and VIBCO President Karl Wadensten. This is an edited transcript of their hourlong discussion.
PBN: Well thanks again all of you for taking the time to discuss the last year in business in Rhode Island and what it might mean for 2019. Sylvia, why don’t we start with you. What was 2018 like?
MAXFIELD: 2018 for Rhode Island was a great, great year, and I think it’s not going to be quite so great next year, but I don’t see a dramatic slowdown.
Home prices are a big piece of what drives overall growth in Rhode Island, and we’ve been seeing 5 percent-plus appreciation. And we’re not going to see that next year. And so the number I’m focused on is appreciation, because that drives consumption. You lever your house. That’s what we were doing before 2008.
If you’ve been having 5 percent appreciation and you’re sort of getting used to that, when you start to see it come down to 3 percent, you don’t feel as wealthy. So that has an effect on consumption, and to some extent on credit as well.
So there will be a little bit of a pullback. The effect of the federal tax cut has made its way through the economy, so we’re not going to have that one-time boost that we had from the tax cut. So things will be a little bit slower.
In the state, unemployment may continue to drop. But remember that the unemployment number doesn’t tell the whole story. We all know that the unemployment metric doesn’t capture folks working part time who would like to have full-time jobs. So I think we may continue to see unemployment come down. At 3.8 percent, it’s lower in Rhode Island than it’s been in an incredibly long time. But our minimum wage is still below some of the other states in New England, well below Massachusetts and Connecticut. So, yes unemployment is low, but we still have the overall macro theme of increased inequality.
PBN: I can tell you that our Business Surveys in 2018, especially the first one in the winter, revealed the strongest response yet to companies saying they were going to hire. They had a strong expectation that they were going to invest and make capital expenditures. The issue of profitability, while it was still better than the year before, it was not quite as much better as it had been. So businesses had pretty strong expectations early in the year, something that went down somewhat by the time we did the second survey in the late summer. That brings me to the question today of whether or not the uncertainty that really came through in the second survey was because of tariffs, whether it was politics, whether it was just in general the business cycle and businesses weren’t quite sure what they were going to see. Mark, what did Washington Trust see in the economy?
GIM: I think I would agree with pretty much everything that Sylvia said. 2018 was a reasonably good year both in the business and consumer side as a result of the tax cuts that went into effect at the beginning of the year. I’d say the level of business activity appears to be steady. It’s not booming by any means, but it’s certainly adequate.
And Rhode Island is among the upper tier of the New England states in terms of economic growth. So looking at us as part of the Boston Fed’s region, all the trends that you mentioned, low unemployment, challenges finding skilled labor in certain areas, strong housing market challenged by rising interest rates, lack of inventory and affordability issues at the upper end of the range, we are experiencing them.
But there are a lot of bigger-picture risks that could come into play in 2019. Trade and tariffs, the whole China-U.S. issue, Brexit, global tensions, and then the fact that 2018 saw some one-time boosts that are unlikely to be repeated. So the deregulation emphasis on financial services, for example, I think caused a lot of optimism about banking profits in the financial-services industry that’s of importance here.
The tax-cut stimulus is not going to happen again. So, I think we would generally feel that 2019 would be an OK year. After that, it’s hard to look much further into the future other than to say that the economic expansion has had an awful long run. Then you have to be cautious.
I think we benefit as a state from the follow-on halo of the Boston metropolitan area, which is one of the U.S.’s major areas, and I think is an increasingly international destination from an investment/intellectual capital standpoint. So we may be better positioned than some other parts of the country to withstand a gradual downturn.
WADENSTEN: Think about [gross domestic product] and the economic boom that we’ve been seeing. It hasn’t grown that much. With employment as low as it has been, GDP should be through the roof, but it has not moved that much.
So on the manufacturing front, if my business is just Rhode Island, I’d struggle at this point. For the companies that go outside the four walls of Rhode Island nationally, it’s very robust. It’s even more robust for people that are exporting. We export a significant amount. It’s awesome.
MAXFIELD: Global growth is likely to slow next year, though. I don’t know what you think about that, but I do think that’s going to be another factor.
GIM: Slowing growth is still growth. So I would agree with you that we don’t expect 2019 to be a repeat of 2018. But. in relative terms, it’s still positive.
PBN: Karl, manufacturing has changed over the last couple of decades. You get greater production out of fewer workers. There’s been more automation. It’s more capital intensive. Do you see that you can be more productive but not necessarily hire more people?
WADENSTEN: No, we still need people. Most manufacturers if they are smart will take the redundant work out. You still need people to think, you need people to do things. So we automate things that just none of us at the table would want to do on a regular basis. You try and figure out how to do that inside the workflow of your daily routine to get workers engaged. If you want to compete in the world, you have to engage peoples’ minds and take that redundant work out.
I’m sure that the construction industry, it’s the same thing.
MCKELVY: We’re really at full employment across the country. Everybody is doing really well, and for us to get the necessary labor, we’ve got to really entice people from other jobs to come work for us. So that challenge of being the best place to work, to retain the talent that you have so that they don’t go work somewhere else, and at the same time having a lucrative enough business where we can pay what we need to pay to keep people and attract people, is a challenge. And so back to what you were talking about lean manufacturing, we have lean in terms of how we do construction, how we do our daily work, because we have to do more and more and more with fewer and fewer people, because they are just simply, simply not there.
PBN: Michelle and Karen, I see you both nodding your heads when workforce was talked about. We’ve heard about it from manufacturing and construction for a while, but it’s also in your fields?
LEDERBERG: It’s definitely true for us as well. It’s a really competitive workforce right now, more so than we’ve seen in years. And as you move away from traditional health insurance, the industry is way behind everybody in focusing on something [such as] data and analytics. It’s critical to the future being able to mine the data that you have and provide it in real time back to physicians and hospitals, and also to members. Today you can get more information about buying a car than you can get about an MRI.
Yet it’s a really difficult market for talent. We’re moving beyond traditionally where we looked for people with a health care background. I mean now we’re looking in other fields, and it’s hard to attract people even though Rhode Island is a great place to live. We’re really selling a lifestyle, a connection. And that can be difficult. I think folks, once they get here, love working for us. They love our commitment to the community. You know there are lots of benefits to being here, but it’s difficult.
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HOUSING HELPS HEALTH: “There is significant improvement in one’s health in terms of how people manage their medications once they’re housed. Their social networks improve when they’re housed, and their use of the emergency departments 911 rescue improve,” said Karen A. Santilli, president and CEO of Crossroads Rhode Island. At left is Mark K. W. Gim, of Washington Trust Bancorp.
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SANTILLI: Well we’re experiencing a bit of a different situation. The social-service sector is a large percentage of the workforce in Rhode Island. And while you all want to gain customers and grow, our goal is the opposite. Unfortunately, we’ve seen growth this year. A 14 percent increase in family homelessness.
When you talk about the housing market, our perspective is a 2 percent vacancy rate is really unhealthy. And while the recovery was great for lots of people, there were many households that didn’t experience recovery. So we’re doing more and more, and funding is level and nothing costs the same now as it used to.
In the last three years, we’ve done a compensation increase for our staff one year out of three. Our concern is we’re losing good employees, where they can go into other sectors and earn more. Fortunately there are some folks in social services that that’s their life calling and they’ll stay regardless. But our challenge is … as we’re growing, finding the resources to support the growth and pay people the way we wish we could.
PBN: Social services are a different way to measure the strength of an economy. So Karen, while you’re seeing increased need, are you seeing a difference in terms of giving, since that also can be a function of how people feel about their financial situation?
SANTILLI: We’ve seen flat levels of giving in philanthropy this year compared to last. You used a word earlier, uncertainty. There’s been a lot of uncertainty in the not-for-profit market this year amongst our peers, and everybody’s trying to estimate what will be the impact of the tax change.
Some have said expect a 4 percent decline. Others have said we really won’t know the impact until after people file their taxes next year. So we’re sort of in this kind of holding-our-breath phase.
At the end of 2017 some of our major donors pulled all their giving forward and said, “We’re going to give it to you now,” because they wanted the tax benefit. Others will make their philanthropic decisions at the end of the year based on taxes.
We were hoping maybe some of the benefits that corporations got would feed into their corporate social giving. It did in some, but not in all.
MAXFIELD: So given the role of eds and meds in the state, that’s something I hadn’t thought about. I think we would fall into the same category. We’ve had a couple of major short-term drives this year, and we’ve been biting our nails to see whether we’re going to get the same levels of giving this year that we did last year given the uncertainty around how that’s going to play out.
SANTILLI: We’re still holding our breath. About a million dollars of our $3 million that we raise every year comes in the last six weeks of the year.
MCKELVY: I think the impact of the elimination of [state and local tax] deductions is going to impact some people this year whether they’re waiting to see how that really plays out on their taxes before they restate or continue their philanthropy and their giving routine. Unfortunately in this part of the country that’s a much bigger impact than in other parts of the country.
WADENSTEN: So think about just in this room. If eds and the meds don’t have money to build, Gilbane does nothing, banking does nothing. I sell no equipment to Gilbane.
SANTILLI: My business would be booming.
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REDUCING REGULATIONS: “You need people, whether it’s in social service, banking, construction or somewhere else, to be advocates and go up and voice and not just say I don’t like this. Show the facts,” said Karl Wadensten, president of VIBCO, of government regulations.
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WADENSTEN: You know I predicted all these great things, but we work our butts off to do that. And you can’t go for your philanthropy or banking outside the region. So you’re very much inside the four walls of New England. It’s not too rosy. There are some pockets that are doing well. But you can’t wait a year or 18 months to find out where you are. People need your resources.
GIM: With some exceptions, this is a state that is driven by small to mid-size enterprises. The national ones certainly matter and have an impact. But while it’s true that even the largest businesses have people who live and work in the communities that they serve whether they’re global or national, for those of us in this room, having a healthy economy, a healthy workforce and a healthy blend of public and private policy that keeps the state competitive and thriving is critically important. And one of the advantages of Rhode Island is that it is small enough that you can actually do that policy intersection between the public and private sector.
Karl, you’re right, all the challenges are there every day. Whether you do well one year, you have to figure out how am I going to do that next year?
We’re not a demographic magnet as in other parts of the country. That said, people from Rhode Island tend to stay in Rhode Island. And if we can train and educate and motivate them properly and intersect their needs with private industry, it’s possible to make those partnerships work.
I think we’ve seen to a small extent of this, Karl, in southern Rhode Island around the whole [Community College of Rhode Island] learning nexus in Westerly, which has helped provide job-force training, for example, for [General Dynamics Electric Boat].
We need to link the needs of business, what types of employees they need. What kinds of skills can we provide to people who are simply looking for opportunities that exist, because we’re all close to full employment. It’s a little easier to make that happen in a state with a million people than it would be in a state of 50 million.
MCKELVY: The fact that people are still homeless and people still need a place to go and that population is increasing is actually a place that we should go to for additional labor. You know whether it’s [PrepareRI] going back into high school or Year Up, there’s programs where we need to tap different pools of labor where we have never tapped them before. So I think it’s easy to say, “OK, we’re at full employment, there’s not much we can do,” but there are things that we can do to really think out of the box.
SANTILLI: It’s got to be beyond employment. It’s got to be what they’re earning in their employment. Over 35 percent of Rhode Island households are what is considered to be over-cost-burdened.
[Recently] the National Alliance for Ending Homelessness came out with a study that showed a direct correlation in communities where more than 30 percent of your expenses go toward rent, and rapid homelessness growth. And so what is full employment if I’m not earning enough to pay my rent and have enough money to live a quality life?
MCKELVY: It’s more than employment.
LEDERBERG: Often health care can have an impact. If you’re not in stable housing, you’re not focused on health needs. There is clear correlation between health outcomes and the burden on the health care system with people who are not in stable housing. So employing folks with a living wage with stable housing also puts less of a burden on the health care system. Our income in any one year really depends on how many health care services people are using and less … on the general economy. And so you know if people are healthier and in a better place, they are accessing the health care system and aren’t using the emergency room as much.
WADENSTEN: So it affects us as employers, too. I think all of us here at this table try to have healthy organizations. We know the impact on our employees. Our wellness programs.
MCKELVY: Prevention is a huge deal.
WADENSTEN: We know that we give the best plans. We still have in our organization $500 and $1,000 deductibles for families. (A number of audible wows are heard.) We still have $5, $7 and $10 copays for prescriptions, because as you know, if you don’t do that for our people, they will ask, “Do I want to stay with that organization? Is that organization making it easy for me when I’m sick so there’s not a burden on me?”
But as manufacturers or organizations, we don’t get any remissions on this health care stuff. Where’s all this money going? Is there a big fat middle in the Oreo there? Where does money go?
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TOUGH MARKET: “It’s a really difficult market for talent. We’re moving beyond traditionally where we looked for people with a health care background. I mean now we’re looking in other fields, and it’s hard to attract people even though Rhode Island is a great place to live,” said Michele B. Lederberg, executive vice president, general counsel and chief administrative officer for Blue Cross & Blue Shield of Rhode Island.
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LEDERBERG: For years, particularly in this state, but nationally, there hasn’t been that drive to change. So you know you have these bricks-and-mortar institutions. They are expensive to run, and you know every time somebody shows up, it pulls the lever. There’s been a lot of work done around the edges to address affordability with some novel programs, working with primary care physicians to put them at the center of care to create a more coordinated experience. But that’s hard, long work. And you know if you keep getting paid every time somebody shows up, why change a model?
PBN: What percentage of your members are in an accountable care organization or a patient-centered medical home?
LEDERBERG: That’s 60 percent at this point of our members are in accountable care organizations. So it’s real progress. But the accountable care organizations in Rhode Island are still not exactly where they need to be. We need to get the specialists involved, because that’s a lot of care that’s being rendered. When you’re taking full risk, everybody’s incentives are in line. When you’re still getting paid by the service, even taking some risks, the incentives are not aligned in the same way. It’s really hard because somebody is not getting the same income they were before. And so I think there has been a lot of work underway in the health care system around patient-centered medical homes, systems of care. But Rhode Island is a lot further behind Massachusetts and other states.
WADENSTEN: I’ll tell you a really, really, really interesting story. We got Mass General, Johns Hopkins, Virginia Mason, Yale New Haven, it goes on and on the list of major hospitals and their boards of directors coming to visit our little company in Richmond, Rhode Island. They get this notion of lean, doing more with less, continuous improvement. So to back this up there’s a hospital in Appleton, Wis. They have 16,000 people with campuses at nine locations. In the last seven years, no missed prescriptions, no infections. They have half the national average of any health care costs. Where that company learned is from Ariens lawn mowers, not from us, from Ariens lawn mowers. They kept cycling people through because what we have in common is we all have a process. That process doesn’t have a lot of wait time, which costs money. That process doesn’t have a lot of waste and rework. So this lean movement – and there is a huge lean movement in health care, in construction, in education – we have too much overhead.
PBN: I almost feel like health care is off here, and the rest of the economy is over there. There’s been improvement, there’s been lean, there’s been all sorts of theories, but health care as is has been sequestered.
MAXFIELD: I hear doctors in this state say that they earn less, way below many other states, or is this just a myth that is propagated?
LEDERBERG: It’s some myth and some truth. So I think reimbursement levels are on average, not in all specialties, lower than in some other states for sure. But there is still a huge amount of utilization higher than benchmarks, higher than in most of the rest of the country in many, many areas here. So you know there may be less per service, but it’s made up in utilization. But the idea going forward is not to pay on a per-service basis.
GIM: Michele, how much of that is due to the fact that the U.S., and the Northeast in particular, are not aging more rapidly but people are living longer? And we are older as a state.
LEDERBERG: We have the highest percentage of over-80 population. I think it’s also that New England has been a traditional, “No, don’t tell me what to do. I want to make my own decisions. I want full choice.” So I think some of the smaller networks and integrated systems that you’ve seen in other places of the country have been slow to come here. So there was less of a drive to push on the health care system. The health care system generally is behind other industries, particularly if you’re talking about data, and I think Rhode Island is behind a lot of the rest of the health care system.
MAXFIELD: Is it partly scale? A million people. Finance tells us you need large numbers to make things work.
LEDERBERG: Yes, that’s why you’re seeing consolidation.
WADENSTEN: Appleton can only be 800,000, some number like that.
MAXFIELD: So it’s almost the size of Rhode Island?
WADENSTEN: Yes, it’s almost the size of Rhode Island. Think about that. We can talk health care. We can go down this wormhole.
MAXFIELD: But scale is an issue across the whole Rhode Island economy. I think about scale all the time, because a million people as a state, it just doesn’t make sense, because you have to have a whole lot of infrastructure to support a state jurisdiction. To support social services, to support roads and schools.
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BACK ON TRACK: “I think we’ve been doing a really good job in the last three or four years trying to do all the different things that a state can do to really spur the economy and get everything back on track,” said Michael E. McKelvy, president and CEO of Gilbane Building Co.
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MCKELVY: The tax base is less per person. You’re just not going to generate the revenue to cover a host of services that most states have with a million people. You’ve got cities in the United States that are way bigger and they don’t have nearly the infrastructure or the bureaucracy that we have as a state. So that’s something that we’ve got to overcome, and I think we’ve been doing a really good job in the last three or four years trying to do all the different things that a state can do to really spur the economy and get everything back on track. And from our perspective, it’s way back on track compared to where it was in 2014. Providence was the lowest-performing office in our network of offices around the country. And now it’s one of the highest performing of similar size from our offices around the country for work in the state.
PBN: So does this have to do with city or state government not necessarily planning but having a plan?
MCKELVY: I think it’s a plan, and it’s also attacking it from a lot of different angles. I mean the [R.I. Commerce Corp.] I think has been the best kept secret in the state. They’ve been doing a lot of good things to try to spur the economy, but they don’t really sing their own song quite enough.
I feel good about where Providence is. I feel good about where Rhode Island is, particularly compared to the past, but still with a small state and a large infrastructure and a small population, you’ve got to do some things differently. You can’t just do it like every other state or like Texas or something. It’s not going to work.
SANTILLI: One of the models that we’ve been researching more and more that’s happening in other communities around the country is where public-private partnerships with health and housing are coming together, and I think there’s also a role for education. As Michele, you said earlier, there is significant improvement in one’s health in terms of how people manage their medications once they’re housed. Their social networks improve when they’re housed, and their use of the emergency departments 911 rescue improve. I mean anytime someone calls 911, it costs $800 for one ride in Providence, and there are thousands of calls from people who just need that support, because they don’t have a place to call home. We know a child’s education improves when they’re housed. So how can we work more effectively across these siloed sectors of education, of health, of housing to be more effective, because we’re all serving the same people in different ways and spending a whole lot of resources.
PBN: This is related to an issue that has been talked about a lot, which is the regulatory regime in the state. There are so many that are either conflicting or overlapping. And so it sounds to me like you’re asking for these three different sectors – education, health, housing – to be working together. Is that just an issue across Rhode Island? Does everybody find that to be an issue for them?
GIM: Fragmentation, which creates part of the charm of a 300-plus-year-old state, also creates some unique challenges, because it’s harder to institute policies across 39 different cities and towns. That makes change a challenge, because it’s often fiercely defended for a whole host of different reasons, including legacy. I mean the Appleton hospitals are probably a county resource.
LEDERBERG: There are duplicated services even in the social services …
SANTILLI: There are too many nonprofits …
LEDERBERG: in the same space.
GIM: All with the best of intentions, but it often means I can go to five different places to get the same answer when one should do. You have five organizations all earnestly trying to solve the same problem with one-fifth of what would be a combined workforce.
SANTILLI: How many nonprofit boards do you serve on?
GIM: I’m on eight.
SANTILLI: He’s on eight nonprofit boards.
MAXFIELD: Holy cow.
SANTILLI: And that’s not unusual. I have board members that are on four or five.
WADENSTEN: So let me get into the regulation thing, because remember now that I’ve served in three administrations, that’s Carcieri, Chafee and Raimondo. And my beginning piece was the Office of Regulatory Reform. That’s kind of rolled into [the Division of Business Regulation] and the lean movement in the state. So as far as regulations are going, and I’ll toot the governor’s horn. The mandate that she has for all the department heads [is] significant. First you have to look at all the regulations, because some people think that just processes are regulations because that’s the way we did it, so it’s a re-education of everybody of these systems to find out what’s regulated and what’s not regulated.
So we’ve gone through that at the beginning of her administration. Now it’s a mandate from the governor to the department heads to reduce these regulations and make it more business friendly. Well in order to have that happen, you need people, whether it’s in social service, banking, construction or somewhere else, to be advocates and go up and voice and not just say I don’t like this. Show the facts. If it’s building permits, show this is what I had to do in this process. Each day with the regulation – in social services, health care, building, my business, universally – each day we don’t have clarity, it costs us money. The unseen dollars of waiting to have this have huge, huge impacts. So the faster we can close those gaps and the faster we can get these offices to work together, these silos. … And we’re doing a lot of good work. We’ve trained – people don’t even notice – we’ve trained 3,000 state employees out of 16,000 for $100,000 in lean 101 in 40-hour classes. We’ve run 40 kaizen events – and a kaizen is a week long – at DBR, [Department of Labor and Training]. We’ve got the best and brightest to come in and help us in the state with these lean efforts, and it needs to continue, and it needs to be this private-public learning.
MAXFIELD: So, do you think public-sector productivity is going up?
WADENSTEN: I think it’s going up. It has to.
MAXFIELD: Are we measuring that?
WADENSTEN: I think just like in health care, the analytics in the state, unfortunately, we have old, old systems. You have to be really on top of the organization or have it mandated, [such as] in banking. And I’m sure the state, in the things they’re regulated on, they know what they’re doing, right, where someone has to look at it. But these are the outcomes that we want to hear as Rhode Islanders.
PBN: But how much confidence can we have in the state given the United Health Infrastructure Project data mess? Sylvia, I was thinking the same question. How do you measure it?
WADENSTEN: I can show you real hard tangibles of lower costs for nursing where a nurse’s license used to take before … 30 to 45 days. Now it’s 24 hours. Just put a figure on somebody that wants to come to the state or is newly graduated, that each day they don’t work, put a hundred dollars on it. Look how many are in the pool. Do some basic math, right? If you really want to get granular later on, you develop that metric.
MAXFIELD: Those metrics are improving, right, the ease of doing business metrics [such as] what the Chamber calculates.
LEDERBERG: I think in some, but certainly not in ours.
SANTILLI: Certainly not in ours. If I gave you a month’s worth of invoices for our state contracts, it would be about 24 inches high.
WADENSTEN: That’s a big hole, that’s a big hole.
SANTILLI: And they won’t function electronically. We have electronic systems that we have to turn into paper to submit our invoices and then it takes the state three or four months to pay us.
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UNCERTAINTY: “We’ve had a couple of major short-term drives this year, and we’ve been biting our nails to see whether we’re going to get the same levels of giving this year that we did last year given the uncertainty around how that’s going to play out,” said Sylvia Maxfield, dean of the Providence College School of Business.
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MAXFIELD: I think I heard earlier the contention that what drives our economy is the small and medium-sized business. One of your questions I think was alluding to programs in place to attract big-name national companies, Infosys, Johnson & Johnson. So what do people think about that economic-development thrust?
SANTILLI: I love it. I think it raises the tide for all boats. I mean it brings new businesses in. I’m not sure what the downside is for any of that kind of development.
LEDERBERG: We agree.
PBN: But a number of those programs have actually been modified to include smaller businesses, too. So there’s a significant small-business element to some of those programs.
MAXFIELD: You’re right. That’s a good correction. It’s not just the big companies.
GIM: I did make that comment that it’s primarily a state of small to medium-sized businesses, which doesn’t mean exclusively. And we’re in the wrong sports season for this, but if you want to score runs, you need a bunch of singles and walks and an occasional home run is a really good thing. And I think it’s only a problem if the state’s so exclusively focused on the biggest companies that it could possibly try to land with outsized incentives and a statistically low probability of conversion, because this is a small state and that has some challenges attached. So it’s OK, as long as you’re not only doing that.
WADENSTEN: So here’s a good stat from Gallup. There are only 1,000 companies in the United States with 10,000 or more employees. There are 18,000 companies with 5,000 to 10,000. But there are 80,000 with 100 to 500. Then bigger numbers for smaller companies. And then the second follow-up was that there are only 20 traded on the exchange with 10,000 or more employees. Twenty of the 1,000. The rest are privately held. So you look at how do you attract those guys because they can go anywhere, do anything. Mark and I were talking about a big company here in Rhode Island that is shifting their market and shifting the way they look at things, and they need to be where that thinking is.
MCKELVY: Thinking and workforce.
WADENSTEN: What is our thinking, what are you guys thinking in Rhode Island?
MCKELVY: We’re not going to be able to compete based on the dollar incentives that we’re going to give someone. And then I don’t think we’re going to be able to compete on being a shining star that’s going to attract someone from far away to come here necessarily. They will come here because of the people, the education and the connectivity that they have in New England to whatever their core business is. There’s plenty of states around the United States that are going to throw more money at them. They’re going to have lower cost of labor, they are going to have lower taxes. They’re going to have all that stuff. But we’ve got to really focus on the companies that have a connectivity to what we are as Rhode Island and what we are in the Northeast, which will attract certain technology companies, certain small startups, companies that are looking for a certain type of educated worker, they’ll come here. But to say, OK, we’re going to go get Amazon, that’s a big lift when you’ve got 49 states that are all wanting to throw more money at it than we can.
MAXFIELD: I’m not a born Rhode Islander, but seven years makes me completely covered …
WADENSTEN: You’re part of the tribe.
GIM: I’ve been here 36. I’m not from here.
MAXFIELD: It seems like this administration is pursuing a policy of much more diversification than my understanding of the history has been in its efforts to attract. And that makes a lot of sense. It’s not a big-bets policy. It’s a relatively mild incentive sprinkled across … it’s kind of like throwing spaghetti at the wall and let’s see what sticks. And that has a lot of advantages to my mind. But I do think that we get more publicity around some of the big names, and we could probably stand to have more publicity around some of the less-big names.
MCKELVY: This is a marathon, it’s not a sprint, right. And what we’re doing and what the governor and the state are doing with investing in education, trying to get the test scores back up, all those things are going to pay dividends in 10, 15, 20 years. You’re going to have fewer people leave the area, they will have more skills, will attract more business. We’re building schools again, where we haven’t built schools for many, many years. Tremendous, tremendous investment. And so I think everyone involved should be applauded, should be given thanks for really stepping out and making that investment, which is going to pay dividends down the road.
GIM: You’re so right, because it goes long beyond the two- or four-year political cycle. These are changes that take place over a period of 10 to 20 years, and if you look at some of the macro Rhode Island trends going back to the ’60s, it has transitioned from a relatively lower-skilled manufacturing economy to a real struggle in the ’80s and ’90s as the region and the state asked, well where do we go with this? I would think that 20 years later on from that, most of us would say we have room to get better. But it’s a lot better than it was many years ago. And if you’re solely focused on one year compared to last year compared to the year before, it’s very difficult to see that kind of change. Our company’s perspective is a lot different. We’ve been here for 200 years. … I couldn’t agree with you more, that you have to see where you’ve come from to really gauge what progress you’ve made.
MCKELVY: Well just like I said, from ’14 to ’18 we have seen a tremendous turnaround just in our own business. Maybe back in ’14 we thought, maybe there isn’t going to be a local business for us. And we would have to export our talent.
MAXFIELD: You mentioned the Boston halo. I never understood why we aren’t more like other pairs of cities that aren’t that far apart. Where there is much more back and forth. Why aren’t we Baltimore and Washington?
GIM: That’s a really good analogy. I don’t know. Part of it is this sort of pride of a small state.
WADENSTEN: There are just as many cities that have the good brother and the bad brother, too.
[caption id="attachment_245642" align="aligncenter" width="696"]
SIZE ADVANTAGE: “One of the advantages of Rhode Island is that it is small enough that you can actually do that policy intersection between the public and private sector,” said Mark K. W. Gim, president and chief operating officer for Washington Trust Bancorp.
/ PBN PHOTO/RUPERT WHITELEY[/caption]
GIM: But embrace it. Why would you not? There are some things that Boston can offer that Rhode Island can’t. But there are a lot of things that Rhode Island can offer in terms of things [such as] affordability that Boston can’t. I contrast the Providence experience with the [Hartford, Conn.] experience. Granted, we are a little closer. I came here in the early ’80s to get an undergraduate degree, and if you told me at the time that Providence would be way ahead of where Hartford would be 35 years on, that just was not going to happen. And yet here we are. So over that continuum of time, I think part of it is not deciding to say, let’s be a moderately sized city and state, and slug it out with the big guys, and instead try to carve out a separate identity for ourselves. And while we do have one, relying on that exclusively when you have an economic locus 45 miles from here, why would you do that?
WADENSTEN: I threw out to the governor, let’s spend some significant time in Japan, just follow the lean process at a Commerce board meeting. She really wants to define her legacy here now of eight years … to lay out a 50- or 100-year plan for the state. We’re all talking about four-year terms. In the Far East there is a totally different scale of time. We’re a young country, we’re a young state, but at some point we have to look at, we’re not playing for the quarter here. We’re playing for the whole season. The legislature, the Senate, the citizens of the state, what’s that look like? But it needs to be wrapped around, what’s Rhode Island’s purpose? It’s a marathon.
MAXFIELD: That’s what she did with pension reform.
SANTILLI: She did do that with pension reform.
LEDERBERG: That’s what you’ve got to do with education. That’s going to be a marathon to fix that problem.
WADENSTEN: That doesn’t mean that you can’t change it in 50 to 100 years, but you don’t get these swings off of the mean from here.
MCKELVY: Is Rhode Island a simpler place to do business than Boston? I don’t think so.
MAXFIELD: I can’t imagine that.
MCKELVY: You talk about, why don’t more people come down here, why don’t they see us as an attractive place? We could be an extremely attractive place to come if things were just easier. Like you said, we could be a county somewhere else. We’ve really made it as complex as we could probably make it.
GIM: Generally it’s historical legacy reasons, not active, let’s make this as complex as we can.
MCKELVY: Do you want someone to say, who lives in Boston, it’s a joy to work in Rhode Island? It’s so stress free, and I think there is a lot of that here, on a human level there is. But is it going to be the simplest place to grow and develop your startup compared to someplace 40 miles away?
WADENSTEN: You deal with owners, investors every day. Look at Fane tower. He knows people in that industry. If it’s a lucrative thing, what’s he going to do? Build more stuff. Do you think that that sets goodwill when people read in the news all the hubbub that we have over something that doesn’t have its full breath in the wind? Every day it’s dollars. You deal with these people. What would they say if they had to put up with those things – not to throw Rhode Island under the bus.
MCKELVY: Anybody that’s willing to come into Rhode Island and invest in the state should be supported in some way.
WADENSTEN: You don’t have the mayor of our capital city saying he wants to design it. These people are putting up their own money. It’s like me remodelling my house and then telling someone else to do it. My wife would kill me.
MAXFIELD: It is parochial.
WADENSTEN: It doesn’t make sense. How do you get out of that and get the path of least resistance? I’ve spent 13 years of my life on the Freedom Tower [in New York]. I’ve been working on all the tunnels and stuff, and these guys are just doing it. Yes, they have the Port Authority and they have a lot of other things, but they know how to navigate those things.
MCKELVY: I think the governor is doing the right things and doing it in a very measured sequence. But you’re right. There are four-year windows. Right. So we’ll look back on it and we’ll see that we’ve been doing the right things. And a lot of what we’re doing is complaining about the way things are, because that’s what we’re used to doing.
PBN: Well my last question is based on the cluster analysis that the governor commissioned at the beginning of her term. It’s been undergirding and defining a lot of what she’s done. How important is it for the political leadership to guide the private sector in moving forward?
GIM: I think partnership with the private sector is more important than guiding it.
LEDERBERG: I totally agree.
WADENSTEN: Let free enterprise do their thing. Just give us a runway.
GIM: And again, it’s possible in a state this size to have meaningful dialogue with a relatively small number of business, nonprofit and community leaders.
PBN: Is there dialogue?
GIM: I don’t [think so], and if there isn’t, it goes both ways. It’s a combination of being reached out to by the public sector and also reaching out to it.
WADENSTEN: We have a responsibility ourselves.
GIM: Yes, that’s what I’m saying.
WADENSTEN: In the manufacturing world, David Chenevert is doing a great job with [the Rhode Island Manufacturers Association] because we’re so busy focused on our businesses, it’s hard to get out. He pounds that drum every day. Change the culture and get up. You have your voice. Say what you mean, mean what you say and don’t be mean about it. And have fact-based conversations.
MCKELVY: In this day and time it’s easy for politicians to be for something, which means they’re against something else. And so I think it’s difficult today to be pro-business but also be an advocate for the rights of the people and everything that the citizens are going through. And so I think Gov. Raimondo does a pretty good job of balancing that. It’s really tough. So what I’ve seen around the country is when business and industry know that the governor is trying to help them because that will help the people, things tend to go easier. When there’s uncertainty, when they’re not really sure, it goes back to where we started this conversation about economic uncertainty. If there’s political uncertainty, then people will hold back their investment. But I think we’re enjoying, at least right now, some consistency from the leadership of the state.
PBN: How about the legislative leadership? You have the executive, yes, but …
MCKELVY: Of course you know if you don’t have the checks and balances, you don’t have the full impact of the design of the governance structure. I think it starts with the governor. And the legislature has to follow. Usually begrudgingly.
PBN: Anyone have anything else they want to add?
WADENSTEN: In our name, it says Hope. In 2018, I had all the hope in the world, and I continue to have that same hope for our state and for our people.
