Closing the Gap: The two Oregons and the way forward

BY JOE CORTRIGHT

"Nostalgia is not an economic strategy."

BY JOE CORTRIGHT | OB POLICY COLUMNIST

"Nostalgia is not an economic strategy."

It’s fair to say there’s a yawning economic, cultural and political chasm between urban and rural Oregon. A quick comparison between the Portland area and the rest of the state shows we have different demographics, different economic bases and vote for different candidates. The tension is palpable and figures prominently in public policy debates.

Much of the tension between the two Oregons is related to competing views of the state economy: one old, the other new. The old economy is tied to natural resources, the new economy to knowledge and innovation.

The idea that Oregon’s economy is resource based is deeply imprinted on our collective psyche. It’s even woven into the carpets in the state capitol: fir trees on the House floor, salmon and wheat in the Senate. But today the truth is that less and less of the economy hinges on access to these raw materials. More and more, it is our ability to create economically valuable new ideas that drives our economy forward — in the city and the country.

Metro Portland, for example, accounts for 55% of the state’s employment, more than 60% of its gross product and 59% of its manufacturing jobs — all proportions that have increased over the past decade. Its success has come from growing clusters of knowledge driven industries in electronics, software, athletic and outdoor goods, transportation equipment, and professional and business services.

In this latest economic cycle, Portland’s knowledge driven economy has powered the state’s economic rebound: Multnomah County alone has created 42% of all net new jobs since 2007.

Rural Oregon has not been so fortunate. The shift to a knowledge economy has produced a growing disparity in average wages between Portland and the rest of the state. In 1979 the average worker in the Portland area earned just 15% more than the average worker in rural Oregon. Today the gap has ballooned to 45%.

In 1980 the wood-products industry employed 85,000 workers statewide at an average salary, in today’s dollars, of $45,000. The industry now employs fewer than half as many workers — due as much to automation and efficiency as smaller harvests. The sector also pays wages that, adjusted for inflation, are about the same as they were three decades ago.

How do we address lagging wages and income growth in rural Oregon? Although it’s tempting to think we could turn back the clock, it’s not realistic. Take the timber industry: The old-growth trees that filled mills in the 1970s have all been harvested. Demand for building products is still weak, and Oregon now faces formidable competition. For decades the Northwest had an effective monopoly on plywood because it could only be made from large-diameter old-growth trees. But the advent of new technologies — small log peeling and waferboard — means we face widespread competition and now are only a minor producer of building panels. And now Oregon logs are sold in a global market and are more valuable to export buyers than domestic mills.

Nostalgia is not an economic strategy. Economies don’t run in reverse; they only go forward. So what is the best economic advice I can give rural communities?

The solution is threefold: First, stop pining for an irredeemable past rooted in traditional natural resource extraction. Calling for higher timber harvests makes for a great stump speech (the federal bill on the former O & C railroad lands is the latest battleground for rehashing this perennial debate) but won’t reverse the market, technology and wage trends that have permanently shrunk this sector.

Second, look for and actively encourage efforts to build the local knowledge base, especially as applied to those traditional local industries. Even in resource-based industries, success increasingly hinges on the ability to generate new and better ways to use our resources. Whether it’s engineered wood products, a growing array of high-value food products from micro-brewed beers, or world-class pinot noirs and artisanal cheeses, business growth and job creation depends on figuring out new ways of making better products.

Third, connect rural economies to the capital, resources and customers of the state’s metro economy. Why? Strong connections to the state’s dynamic economic engine in Portland turn out to be big advantages for rural businesses. In every corner of the state, the places that are closer and better connected to Portland have outperformed their more traditional and isolated peers. In the 1960s, Klamath Falls outranked Bend, Coos Bay was larger than Newport, and Eugene was larger than metro Salem. Since then, the places culturally and economically closer to Portland have surpassed their more rural cousins in growth.

There may be a divide between urban and rural Oregon, but city and country alike have a strong common interest in policies that promote education, entrepreneurship and innovation. Education is critical because it’s hard for firms to be productive and apply new technologies without highly educated workers. As for entrepreneurship, we need to encourage new businesses because they are disproportionately the ones that apply disruptive new ideas.

If you look up from the carpets in the state capitol, you’ll see images of pioneers emblazoned on the marble halls — pioneers who came to Oregon, risking everything to build a new and better future. When it comes to bridging the divide between the two Oregons and building a healthy economy, we would all do well do to embrace that pioneering spirit.

  • Joe Cortright is president and principal economist for Impresa, a consulting firm specializing in regional economic analysis, innovation and industry clusters.

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