We’ve reported here in the past that Arizona and Tucson in particular is too dependent on growth related industries for it’s economic engine. The premise of this article is that from the ashes a phoenix will arise. The darkest hour is just before dawn.  Our economy is taking such a hit due to our over dependence on housing that our leaders and elected officials are looking to diversify away from growth and construction to diversify our income stream.  In order to make that step we must take a long range look at the underlying variable. We must train our workers to be prepared for the new industries. We must bring along our elected officials and government bureaucracies so they have time to get out of the way or create pathways to help industry get things done.

Experts: Now is time to retool Ariz. economy

14 commentsby Chad Graham - Nov. 16, 2008 12:00 AM
The Arizona Republic

The Valley’s economy could start to recover in 2010.

That is when some economists believe the glut of excess homes will be absorbed and new residents will spark new construction.

But if history is a guide, metropolitan Phoenix will only seem to rebound. Despite decades of real- estate run-ups, quality-of-life measures for the region continue to fall.

The region remains incredibly vulnerable to wrenching booms and busts because it’s too dependent on industries related to population growth.

Seeing the damage inflicted by the current crisis, a growing number of development experts, business leaders and lawmakers say it’s more critical than ever to diversify the economy. Recruiting companies that make products for the solar-energy industry and luring other advanced-manufacturing jobs could help, experts said

“The wake-up call is really, really loud this time,” said Rob Melnick, executive director of ASU’s Global Institute of Sustainability.

When the housing market rebounds, it could be less profitable. Expected changes to the financial industry will keep lenders from “giving away all these mortgages that made Arizona look so good,” he said.

Arizona has made some inroads to diversify its economy.

The state has a fledgling bioscience sector. In June, the nation of Luxembourg announced a $200 million research partnership that included the Translational Genomics Research Institute and Arizona State University.

There is also Arizona’s traditionally strong semiconductor and defense manufacturing foundation, even though those industries have taken near-term hits. This month, for example, Phoenix-based Honeywell Aerospace said it plans to move 700 manufacturing jobs from Phoenix to Mexico and the Czech Republic.

Although further diversifying an economy during troubled times may seem impossible, it has worked for other ailing regions that once depended too much on a single industry. San Diego, for example, added biomedical sciences to balance its military- and real-estate-based economy.

“One hundred percent of the best economic work done in the United States is done during periods like this,” said Barry Broome, president and CEO of the Greater Phoenix Economic Council. “Periods of prosperity usually create periods of complacency.”

Rep. Lucy Mason said the economic downturn was a wake-up call. “It feels like we’ve been sucker-punched,” said the Prescott Republican. It’s a sign that Arizona should have better diversified its economy over the past decade, said Mason, who last session got a bill passed that extended a property-tax break for renewable-energy plants.

The tax break was a key incentive for the Solana Generating Station. Billed as the world’s largest solar-power plant if it were operating today, it is on track to start producing renewable energy in 2011. Its total economic impact is estimated to be $1 billion.

The economic council and other groups continue to support calls for additional tax incentives for solar-energy companies.

Cultivating a solar industry is but one initiative economic leaders are pushing.

Finding better ways to develop the state’s workforce, establishing better cooperation among companies and increasing partnerships with universities will be the focus of the Governor’s Manufacturing Summit next month.

The economic crisis has given the event a new sense of urgency, said John Little, director of operations for the Arizona Manufacturing Extension Partnership, which helps manufacturers become more globally competitive.

Manufacturing pays high wages and is a counterbalance to the service and tourism industries, he said.

“So many people look at manufacturing like it’s the old, dirty machine shop,” he said. “It’s not, especially when you get into advanced manufacturing.” Those jobs defy old stereotypes of assembly-line setups, employing workers with more skills and even college degrees to turn out precision parts for a high-tech economy.

To be sure, diversifying the economy does not replace growth-related industries like housing. Construction and service-industry jobs typically indicate that an economy is growing.

“People are still going to move (here). Those fundamentals are not going to change,” Melnick said. “The only thing we can change is our investment strategy to try to diversify the portfolio.”

 

Another great article HERE.

Boom-bust cycle leaves lessons still unlearned

1 commentby Chad Graham - Nov. 16, 2008 12:00 AM
The Arizona Republic

For decades, leaders have worried that Phoenix was too dependent on growth. With each bust, they vowed to add a better mix of jobs and industries.

But then another growth spurt would wash over the state and drown out the concern.

Some experts argue that is how the economy will always function.

But this strategy keeps the region from being a serious competitor in the global economy and decreases the quality of life, federal and state data suggest.

About 20 years ago, the Valley found itself in an all-too-familiar predicament.

The savings-and-loan scandal and the ensuing real-estate crisis sank home values and increased foreclosures.

“Arizona has been on a binge, a long one,” one banking regulator told the Los Angeles Times.

Business leaders vowed to diversify the economy.

But the next boom that started in the mid-1990s and lasted through 2007 was fueled by growth. The only real period of decline came after the dot-com bust of the early 2000s.

From 1991 to 2006, job growth in the Phoenix area measured in the top 10 nationally.

Despite the prosperity, concerns mounted.

The economy “disproportionately contains industries that respond to sheer growth: construction, real estate and utilities,” a Maricopa Association of Governments report warned in 2003.

In the end, the boom did not appear to improve the quality of life of Valley residents.

In 1990, Valley per capita personal income ranked 110th out of 363 U.S. metropolitan areas. In 2006, it slipped to 123.

Reach the reporter at chad .graham@arizonarepublic.com.

Another HERE.

Manufacturing helps cushion against crash

Unlike housing, industry weathering slump without big cuts

2 commentsby Chad Graham - Nov. 16, 2008 12:00 AM
The Arizona Republic

Vantage Mobility International is the kind of manufacturer that adds diversity to the Valley’s growth-based economy.

From its Phoenix assembly line, it retrofits mostly Honda and Chrysler mini-vans for disabled drivers. It is the only company in the world with permission to alter American Honda Corp.’s vans.

Its workers range from engineers to assembly-line workers. Last year, it even recruited laid-off auto-industry workers from Detroit.

The company boomed along with metro Phoenix.

In 1992, VMI employed about a dozen workers who retrofitted about 70 vehicles annually. In 2007, it employed about 220 who turned out about 2,500 vehicles.

The Valley’s manufacturing industry and construction industry have performed very differently in the current crisis, according to Arizona Department of Commerce data.

Between September 2007 and September 2008, manufacturing lost 1 percent of its workforce compared with 18 percent for construction.

Advanced manufacturing, which employs workers with higher levels of education and training, did better, as well. Employment at computer and electronics parts makers in the Valley fell 1 percent. Aerospace products and parts makers gained 0.7 percent.

Although overall job losses in manufacturing could widen as the economy sputters, the industry has provided some economic stability during the burst of the real-estate bubble.

If the state wants “to tip the scale so that we’ve got a balance between the service industry . . . and high-tech manufacturing, it’s going to take a statewide acknowledgement that you have to invest to keep that,” said John Little, director of operations for the Arizona Manufacturing Extension Partnership.

“A cohesive state strategy could find ways to invest in the growth of the manufacturing community and the growth and education of its workforce. This leads to high-paying jobs with benefits.”

The partnership, a non-profit organization that provides training and assistance to manufacturers, is a host of the Governor’s Manufacturing Summit next month. The event will examine ways the state can develop its manufacturing workforce and better unify the industry.

That will be even more critical as the global economic crisis impacts much more than the housing industry.

VMI, like other Valley companies, has taken a hit. It had no choice but to recently lay off about 15 percent of its workforce.

Still, VMI remains an employer of high-tech jobs. The company continues to make research and development a priority. It employs a wide range of engineers.

It has launched the retrofit of the 2008 Chrysler/Dodge minivan and a new kind of ramp for the Honda Odyssey.

“We’re still developing quality products,” President and CEO Doug Eaton said.