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Originally published Thursday, April 11, 2013 at 4:53 PM

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Don’t be smug about region’s economic outlook

Seattle's been feeling pretty good about itself lately, and not without cause. But here are 10 reasons why the Puget Sound region and Washington state can't afford to be smug.

Special to The Seattle Times

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Seattle’s been feeling pretty good about itself lately, and not without cause. The Amazon boom, lower unemployment than the rest of the state, Google expanding in Kirkland, and strong national rankings on economic performance make this more than mindless boosterism.

The whack upside the head came a few days ago, when Boeing said it would invest $1 billion in South Carolina, promising to create 2,000 jobs there. This came amid several warnings of layoffs here.

Thanks, we needed that.

Here are 10 reasons why the Puget Sound region and Washington state can’t afford to be smug.

1. Boeing

With 6,600 workers in South Carolina and nearly 86,000 in Washington, the company that most underpins our world-class aerospace cluster will continue to be critically important for years to come.

But this isn’t your parents’ Boeing, and the drawdown in employment here likely represents more than the boom and bust cycles of the past. New Boeing wants to diversify its locations for assembly and other functions once dominated by the Puget Sound region.

A very real risk exists that Boeing will not only play states against each other for tax breaks and other incentives, but will inevitably move more work to South Carolina and elsewhere. The transition time might be a decade, but that can pass very quickly for the unprepared.

2. Microsoft

We had “Bill Luck,” not just with Bill Boeing but also when Bill Gates moved his new software company here from Albuquerque in the late 1970s.

Now Microsoft is no longer young. It missed the search-engine breakthrough, was late to the rise of smartphones and is besieged by competitors. Those include a new generation from China.

The good news is Microsoft spawned clusters of software and game development here by other companies. But it’s still the big dog, and unless it can get back to making profitable breakthroughs, the old standby products will fade. If that happens, the economic consequences will be grave.

3. UW

No major technology or biomedical cluster exists anywhere in the world without an outstanding research university, and preferably more than one. Seattle has been very fortunate to have the UW University of Washington to attract international talent.

But since the recession, the state has been radically reducing the funding for higher education. This is playing with fire.

4. Unemployment

The Seattle area has done better at job creation since the downturn, but Washington continues to suffer an unemployment crisis. In 2012, the state unemployment rate was 16.9 percent when discouraged workers and part-timers seeking full-time work are included. That compares with 14.7 percent for the United States as a whole.

Unless Washington can add more jobs, it will continue to carry the drag of relatively high unemployment going into the next recession.

5. Competition comes not just from the bottom but also from the top

This region can’t become South Carolina or Alabama, and it wouldn’t want to. Those low-cost states suffer worse social outcomes and less opportunity. And they face competition from even lower-cost regions around the world.

Our real rivals are places with relatively high costs but world-class quality. And they’re not primping their laurels.

For example, ports in British Columbia and Southern California are making big investments to preserve business when the wider Panama Canal opens.

6. Government austerity

Sequester cuts don’t just threaten smaller airport towers or the military. For example, sequestration will eliminate 1,000 grants from the National Institutes of Health, a major funder of the UW.

Other science grants will be at risk, including for the clean technology that local entrepreneurs hope to build into a new cluster here.

7. The disconnect between state revenue and needs

Washingtonians nearly across the political spectrum don’t want new taxes. Yet the state didn’t become a leader merely thanks to Bill Luck, but also because of public investments that continue to pay off. Unfortunately, our ability to make new investments, or even keep existing ones in place, is under severe pressure.

The tax base is too narrow and geared to a robust manufacturing and timber economy that no longer exists. Tax breaks are numerous, and not always a bad thing. But they need to be evaluated to see if they are producing greater return than the revenue they cost.

8. Infrastructure

The mudslides along the railroad tracks between Seattle and Everett are a reminder that our infrastructure is inferior, in some cases literally crumbling, and a competitive hindrance. That line not only moves passengers — and should handle more to relieve a choked Interstate 5 — but it is a main route for freight to and from the ports.

Light rail to the Eastside is happening years later than it should have. Finishing the so-called last mile of highway connections to the ports is still being talked to death. Streets and truck routes in the warehouse areas are in horrible condition. These are just a few examples of where we’re sleepwalking with investments made in decades past and hoping our rivals are doing the same.

They’re not. For example, Vancouver, B.C., is spending billions for advanced transit while Seattle is mostly still arguing over studies.

9. The next big thing

Seattle is benefiting from the Amazon boom. But where is the next Amazon? The area has thrived in the past and punches well above its weight, thanks to its ability to keep reinventing itself.

The emerging world-health sector anchored by the Bill & Melinda Gates Foundation, new medical research entities such as the Allen Institute for Brain Science and the push for clean tech are all promising.

But the competitive environment has never been more challenging, with the rise of such powers as China and India, government cutbacks at home and a slow-growing economy. Capital is less patient, less willing to take risks for long-term gains. And some experts say the low-hanging fruits of technology have been picked and we lack another transformative breakthrough.

10. Climate change

It may be that the Northwest avoids the worst near-term consequences of a warming planet aside from more rain. But we don’t know the potential affects on Washington agriculture and ecosystems, or how shipping patterns will change.

For example, a paper published in the Proceedings of the National Academy of Sciences warns that by 2050, from 19 to 73 percent of the choice land in the world’s wine-growing regions could be lost to climate change. Much of Washington’s vineyards may get off easy, but this isn’t a given

Boeing is the tip of our iceberg of discontinuity. The Puget Sound region is in better shape than any metropolitan area that doesn’t have oil or a major financial hub.

But we rest easy at our peril.

You may reach Jon Talton at jtalton@seattletimes.com

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