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Originally published October 26, 2008 at 12:00 AM | Page modified October 28, 2008 at 11:26 AM

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On the Economy

Governor's race may seem déjà vu, but times are very different

Here's my question for Gov. Christine Gregoire and challenger Dino Rossi: Are you sure you really want this job? The governor's race between...

Special to The Seattle Times

Here's my question for Gov. Christine Gregoire and challenger Dino Rossi: Are you sure you really want this job?

The governor's race between Democratic incumbent Gregoire and Republican Rossi is expected to be one of the closest contests in the country.

The political shorthand is clear: Gregoire the steady, long-serving technocrat; Rossi, a master salesman, positioning himself as an agent of change. The governor, a centrist, seems slow-moving and colorless. Rossi, beneath his GOP brand, offers fairly conventional conservative Republican policies. A career real-estate executive, he is closely tied to the Building Industry Association of Washington.

In other words, it's 2004 redux, when Rossi lost by 133 votes. If only either victor could count on a 2004 economy. Then, the state was headed into recovery from the painful tech crash and post-9/11 recession.

The economy would become so strong and diversified, especially in the Puget Sound region, that it would be one of the last to suffer from the national downturn. In boom times, political leadership recedes into the background.

Unfortunately, that's not the economy the winner will find after being sworn in. A projected $3.2 billion shortfall in the next state budget, mostly because slowing consumer demand has hammered sales taxes, is only one sign of a potentially tectonic economic shift, here and nationally.

The state has lost two major corporate headquarters, with two more in danger. Unemployment is rising. Housing values and sales are falling. Commercial construction is slowing. Even vibrant areas are now getting the gap-toothed look of empty storefronts.

As financial contagion spreads, Washington's enviable export growth is at risk. The credit collapse is now endangering innovative technology companies as well as overstretched homeowners.

More troubling, state and local governments are facing stricken credit markets, with much higher borrowing costs if they can sell bonds at all. Before credit markets appeared to thaw last week, California and Massachusetts were warning that they may seek emergency federal help if they continue to be frozen out of the credit markets.

This is one example of how the national financial crisis is a new and dangerous event. It resembles a 19th-century financial panic except the federal government still has much of the firefighting apparatus of the New Deal to address it.

Such things as federal deposit insurance have helped stave off another Great Depression. Still, it's going to be a near thing. We've been through a run on a shadow banking system that most Americans didn't even know existed.

Whoever wins the governor's race will likely be looking at immediate crisis management, with other promises put on hold even as needs rise.

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That's the good news.

The bad news: More than that, she or he will be operating in an environment of discontinuity — the next 30 years won't be a replay of the past three decades. The financial crisis is only one example.

Even many oil executives admit the world is near its production peak where half of this one-time geologic bonus will have been burned off, and the remainder will be more difficult to reach and refine, thus more costly. Global warming is already causing disruptions that will have economic consequences.

Meanwhile, the competitive race Washington is running, whether it likes it or not, will not cease. It's going to get more intense. And like many American states, we are huffing, puffing, falling behind rivals in China, India, Singapore and the European Union.

That matters much more for the future than the fact that Washington leaves such places as Mississippi and Arizona (which are low tax states) in the dust.

Our world competitors are establishing new universities, spending on research and science, building high-speed rail and subways, investing in green technologies and beginning to bypass America as a financial center and magnet for talent. We can't deal with the Alaskan Way Viaduct.

We're not facing the Great Depression. We are facing the Great Disruption.

While Washington has enviable assets, from Microsoft to a robust agricultural sector, these are yesterday's news. Meanwhile, the state received some sobering grades in the most recent Development Report Card on the States, a well-regarded survey by the nonprofit organization CFED.

Washington ranks well where we would expect it, such as in technology-industry employment and use of alternative energy. But the state ranks 43rd in K-12 educational expenditures; 44th in the disparity between rural and urban areas; 44th in graduate students in science and engineering; and dead last in the change in average annual pay between 2000 and 2004.

We received an A on development capacity, especially innovation assets. We got a solid B on quality of life. But we came up with a D on competitiveness of existing businesses. (See the survey, which is based on a variety of gold-standard sources, at www.cfed.org).

This latter grade was reinforced by an e-mail I received from Steve Gordon, chief operating officer of Gordon Trucking in Pacific. "I get the chance to interact with a lot of different business, from retailers to manufacturers. I'm always amazed at how consistently the companies we visit with shake their head at the business conditions in this region, and reinforce that they're here only because they HAVE to be, not because they WANT to be. Most everyone acknowledges the (Northwest) as a region that is one of the most unfriendly climates for doing business in the U.S."

Gordon worries that the local companies likely to employ most Washingtonians are being squeezed out by high taxes and regulation. It's become an extremely stratified environment where you either hit the lottery working in the tech sector, or if you don't, you're working pretty far down the ladder in the service industry.

These are the two Washingtons that will bedevil any governor. It's not just east vs. west of the Cascades. It's the sharp — and dangerous — divide between winners and losers in the new global economy. It's the tough trade-offs: not everything can be solved by government; tax cuts aren't free or a cure-all.

It's an open question how much a governor can do. Still, to take one example, North Carolina has a Research Triangle Park because one governor fought for it half a century ago, at another time of great change.

It would be instructive for our candidates to spend more time telling us how they might navigate this disruption that goes far beyond a state budget or road building, at a time when political leadership will really matter.

Jon Talton at jtalton@seattletimes.com

Copyright © 2008 The Seattle Times Company

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About On the Economy
Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest
jtalton@yahoo.com

Jon Talton: Jon Talton: Higher oil prices are a danger to economic recovery

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