Why the Recovery Remains Sluggish

Member Group : Lincoln Institute

The last time more Pennsylvania business leaders felt the state’s economy was headed in the right direction George W. Bush was just weeks away from being elected to his second term of office. The economy had largely recovered from the devastation of the September 11, 2001 terrorist attacks and the resulting economic slowdown.

It has been a downhill roller coaster ride ever since with employer confidence in the business climate hitting bottom in the spring of 2009 during the depths of the Great Recession. Despite the happy talk coming from both Washington and Harrisburg, those who actually run businesses say the economy is still getting worse, not better.

Every spring and fall for the past 18 years the Lincoln Institute of Public Opinion Research has conducted the Keystone Business Climate Survey. It has served as an accurate barometer of economic activity in the state. The survey depends not on government statistics – which are often subject to "revisions" – but rather directly asks the owners and chief executive officers who run businesses of all sizes about the economic climate they are actually experiencing.

In the fall of 2004, 28% felt the business climate was improving, while 21% said it had gotten worse. Fast forward to the spring of 2009 – the nadir of the Great Recession – and 76% said economic conditions had gotten worse in the preceding six months as opposed to just 4% who felt it had improved. The latest survey, conducted in September, found just 15% of the business owners/CEOs saying Pennsylvania’s business climate had improved, with 41% saying it is has gotten worse. Another 55% felt business conditions had remained about the same, but – since the barometer was already at a historic low point that is faint praise.

The "recovery" from the Great Recession has been going on for nearly five years making it one of the longest recoveries in history. Why is it taking so long? The simple answer is that a wide range of government economic policies and regulations make it nearly impossible to do so. Nothing discourages business development and expansion more than uncertainty. From health care to tax rates to rapidly expanding regulation Washington has served up more uncertainty than the economy can digest.

Obamacare is the biggest culprit. Seventy-eight percent of the CEO’s surveyed said they expect their health care costs to increase under provisions of the Affordable Care Act. Obamacare is so solidly opposed by the business community that three-quarters said the law should be repealed. Prior to the start of the recent partial government shutdown 69% said congress should defund the Affordable Care Act even if a shutdown ensued, which it did. Republicans, of course, caved in leaving Obamacare intact. This survey was taken before the Obamacare enrollment period opened and the roll-out melted down under the weight of technical glitches.

Let’s not blame just the federal government for the dour mood of Pennsylvania’s employers and job creators. State government comes in for its share of the blame. The survey was taken just as legislators returned from a lengthy summer break having failed to take action on key agenda items including liquor privatization, transportation funding and dealing with the state’s pension crisis.

The Keystone Business Climate Survey last spring revealed 85% of the CEO’s supported privatizing the state’s liquor stores. Sixty-nine percent opposed removing the oil franchise tax cap as advocated by Governor Tom Corbett and the Republican majority in the state senate. The September poll found 59% would rather take money from other parts of the budget to fund transportation infrastructure improvements than raises taxes or fees. There is also strong support among the business leaders for the state to move employees from a defined benefit to a defined contributions pension system.

Thus owners/CEOs find state government either not acting on key legislative items – such as liquor privatization and pensions – or acting in ways they don’t support as transportation funding. Business leaders are also confronted with a Republican-controlled General Assembly and a Republican Governor who have failed to enact any labor power reforms. This leaves the labor playing field heavily tilted against job creators.

Looking ahead, by a two-to-one margin those engaged in actually running a business in Penn’s Woods say they expect the state’s business climate to continue getting worse over the coming six months. Given the inability of the national government to come to grips with debt and spending and the gridlock in Harrisburg there is ample reason to believe they are correct in their assessment.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal. His e-mail address is [email protected])

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