Kanavas: Invest Wisconsin Stakes New Ground in Making State Competitive
By Brian E. Clark
Republican legislative leaders recently unveiled their "Invest Wisconsin" roadmap to prosperity. In part, it is an answer to Democratic Gov. Jim Doyle's "Grow Wisconsin" program, which his opponents have labeled inadequate.
If their plans are followed, Republicans say they will transform Wisconsin into an entrepreneur's stronghold where job creation will be the top priority.
In late November, WisBusiness.com editor Brian Clark spoke with Sen. Ted Kanavas, R-Brookfield, the architect of many of the Republicans' economic stimulation efforts. The blunt-speaking Kanavas, a businessman, says Wisconsin’s future doesn’t lie with companies like GM, which recently spared the old Janesville plant. ``The future of Wisconsin is not going to be in keeping GM in Janesville,’’ Kanavas said. ``It is in creating new opportunities and retraining people so that we can have a more diverse economy. And that is what will happen if we are successful with things like Invest Wisconsin.’’
See a WisBusiness.com interview with Doyle Commerce Secretary Mary Burke from October on Gov. Jim Doyle’s ``Grow Wisconsin’’ plan: http://wisbusiness.com/index.iml?Article=46331
Brian Clark: How long has Invest Wisconsin been in the works?
Ted Kanavas: We have been gathering all of the different initiatives for about a year and reworking them in an effort to piece together a package that would challenge lawmakers around two specific areas.
One is the continued evolution of our agricultural and manufacturing economy. The second was around our entrepreneurial culture so that we can create more opportunities around intellectual property, driving intellectual property back into agriculture and the manufacturing base.
And also to try to create opportunities for new kinds of industries that are just in their beginning phases here in Wisconsin. Those are the two main initiatives. It took about a year to put all those together.
Clark: What are the other areas you're concentrating on?
Kanavas: They include tax relief, obviously in the area of capital gains, as well as innovation tax credits to help companies change their product lines and R&D opportunities. We've also targeted regulatory relief and reform, judicial and liability reform, workforce training to help people "train up" so they can participate in new jobs and infrastructure enhancements to encourage broadband deployment across the state. Finally, we want to encourage capital investment by groups like the State of Wisconsin Investment Board (SWIB), and to make substantive changes to Act 255, which grants tax credits to individuals who invest in start-up companies.
Clark: Act 255 has been called your baby. How has it done?
Kanavas: It has been a spectacular success. It has focused efforts for the first time in an area that has been way under-represented in our economy - and that is in new capital start-ups. When you look at incubator-stage companies and being able to fund them up with investment credits going to individuals as well as fund investors - that is a huge change and something that was desperately needed.
Clark: Has 255 been your largest success?
Kanavas: We've been very fortunate in this office in terms of helping the economy. Act 255 was big. So was challenging the governor and the locals on tax freezes. I was the author of the Senate tax freeze this session. I am the author the Job Protection Act, which is the litigation reform. There are a lot of initiatives that I feel good about. But if you are talking about something that will have an historic impact, no question that Act 255 is it.
Clark: How would you compare "Invest Wisconsin" with Gov. Doyle's "Grow Wisconsin" program?
Kanavas: Unfortunately, I think the governor took a bunch of old proposals and just slammed them back together and said, `We will do these things we didn't get done the last time around.’
I was under-whelmed and I told the governor and his staff that. If you are going to try to challenge the Wisconsin economy, you have to do it in bold strokes. You can't just repackage a bunch of things and give them another shot.
With "Invest Wisconsin," we are literally staking out new ground and territory. We are saying to this country and the rest of the world, `If you want to be somewhere and grow and evolve your company, this is the place to be.’
Clark: What do you think are the big obstacles facing the Wisconsin economy?
Kanavas: The biggest obstacle remains taxes. If I had a magic wand and could wave it over the top, I would take our tax situation from third or fourth in the country down to the middle. If we did that, we would be a heck of a lot more competitive.
I am a firm believer that is possible to have high-quality infrastructure and education without being No. 1 in the cost for providing it. As a former school board member, I can tell you that there are things you can do to save money in education. In my home district of Elmbrook, we have been able to prove that by reducing operating costs by 10-12 percent over the past five years. You can find ways to do that, but you must be very constructive in trying to reduce the tax burden on individuals and companies. If we don't, we won't be competitive.
The second area is capital formation. We must have a better capital climate in this state. The capital climate is going to mean that people are going to be able to reinvest in companies new ideas and that is where future job growth is going to come from. That should be our main objective, higher-paying, high-quality jobs.
Clark: Is that capital now going to the coasts?
Kanavas: The coasts will never invest in a meaningful way in Wisconsin because there are already too many opportunities there. We can't expect them to be players here. Historically, a lot of private capital from here has stayed on the sidelines and gone to money managers instead of transactions.
The other thing that's happening is that you are seeing a lot of capital flight. As people get to retirement age, they move. I can't tell you how many Florida residents I have in my district. They are taking their capital with them and making investments in Florida. They see it as a better opportunity fit. Unfortunately, we have this stigma here that an opportunity is only good if it's 1,000 miles away.
The fact is, Wisconsin has great opportunities and you'll see that more as groups like SWIB take more of an active interest in investing and as individual funds and individual angel networks growing and having a great deal of success.
Clark: I've heard the anecdote that Wisconsin investors would rather lose money on the coasts or abroad rather than make it here.
Kanavas: Right. That's been true. And there is a certain cachet to California. But I have worked and lived there and I can tell you right now that I would rather invest in Wisconsin companies that have creative, hard-working people. In California, you have a tremendous amount of over-employment, where people's skills don't match their work. It is just the opposite here. We have people who are under-employed here.
Clark: A recent manufacturing study said Wisconsin workers' output is only 86 percent of the national average. What do you make of that?
Kanavas: Some of that is predicated on what industries are studied. The other thing is that we have had highly inefficient industries in Wisconsin. We still do. That is why it is so important to have things like the innovation tax credit. It says if you innovate, if you change, if you look for ways to create new products and services and plug into a different place in the supply chain, we will give you a tax credit for doing that.
Clark: GM recently announced that it would keep the Janesville assembly plant open. Were you surprised?
Kanavas: I was not surprised. But at the same time, we have to be realistic as it relates to the future of these plants. The future of Wisconsin is not going to be in keeping GM in Janesville. It is in creating new opportunities and retraining people so that we can have a more diverse economy. And that is what will happen if we are successful with things like Invest Wisconsin.
It is only a matter of time before we lose a lot of this high labor-burdened opportunity set in America. The reason is because it is now a world labor market and we can never get away from that reality. Until we get a better understanding that we can't wish problems away, we must create an environment where success is a byproduct of good planning and good investment. Until then, we will be on the outside looking in.
Keep in mind that Asia is growing at a rate in the teens and America is growing at about 3 percent. That might be healthy in the long term to the world economy because you will create a lot more wealth in Asia. But for the American economy, unless we continue to build innovative products that people want to buy worldwide, we are going to be net losers in that. We need reinvest in intellectual property to create the kinds of jobs and products and services that people around the globe want to buy.
Clark: Gov. Doyle put $10 million into the Janesville plant and took credit for helping keep GM in that city for this round at least. Was that a good idea?
Kanavas: That's fine if you think that the future of Janesville is GM. Then you can make that investment. What you really have to understand, though, is that as a long-term proposition, it is going to become increasingly more difficult for GM to continue - and they have acknowledged this by laying off 30,000 people and closing down plants - the way it has been doing business. They need new plants and wage and benefits scales that support this kind of production.
Clark: Historically, those were great jobs, especially for someone who had just a high school education. What would you tell people now to do to prepare for jobs of the future?
Kanavas: What I would tell kids to do is to invest in themselves and that means education and their personal lives. If you are going to spend money, spend it on education. The reason is because is there is a direct correlation between being financially secure and the amount and quality of education you have.
My advice to kids is to get as much education as you can. If you are not going to get a four-year degree, then go into an area where you can add a lot of value by either being creative or working with teams - such as in engineering - where you can add value.
If you can't do either of those things, you are going to have trouble. We are in a global market, and we have to look outside of Wisconsin's borders to understand how this is going to work.
Clark: Have you heard anything back from the governor's office on how he views Invest Wisconsin?
Kanavas: The governor was largely supportive of a lot of the measures. But this is something that we will have to implement over three to four years, whether he is the governor or not. Obviously, the governor and I have had a pretty good relationship when it comes to getting bills signed. And I think that is because we have been aggressive in putting aside partisanship in an effort to try to get something pushed through for the economy so people can understand that their government is doing something for them. And I continue to be optimistic that we will get a lot of this implemented.
Clark: He has been described as a pro-business Democrat. Would you agree with that?
Kanavas: He wants to be seen as a pro-business Democrat. But I think you have to do something to earn that reputation. And while he has signed some pro-business legislation, the fact is that being a pro-business person is like being a farmer. You have to wake up every day and either till, plant or harvest it. And that is exactly what we need to do with this economy. We have to do something to either get ahead or stay ahead of world competition. You can't treat this issue as a check mark on your policy agenda. To that end, I don't think the Doyle administration has had enough imagination or consistency of effort. As for being pro-business, I would give the governor a C. I don't think we can say Wisconsin's economy will be stronger in 10 years because of things he has done.
Clark: Are there any areas in which you'd give him an F?
Kanavas: The true test will be what is in front of us. If he does not sign some of the things that his friends in the trial bar oppose, such as the Job Protection Act - which deals with liability - or something with caps for medical malpractice, I think he'll get an F in that area because it could have a huge impact on our state. (Editor’s note: Doyle on Dec. 2 vetoed the medical malpractice caps sent to him by the Republican Legislature.)
If he says to the trial bar, come into the state and file your cases here, Wisconsin will be a laughing stock and will deserve to get an F.
He hasn't done well in taxes, either. He had the chance to sign a meaningful tax freeze and did not do it. He is opposed to the taxpayer bill of rights (TABOR). He would get an F on taxes.
Pro-business people also will be watching what he does with water in Waukesha County, which is one of the fastest-growing counties in the state. If the Doyle administration signs on the water compact (that limits withdrawals from the Great Lakes) then he must work with the DNR to implement tools so Waukesha will have meaningful opportunities to get water from Lake Michigan and return it in a sensible way. If he can't come through for Waukesha in terms of water, he can't call himself pro-business. (Editor’s note: For another perspective on the water issue, see the column by former city of Milwaukee official and policy analyst James Rowen: http://wisopinion.com/index.iml?mdl=article.mdl&article=3036)
Clark: Are businesses still leaving because of the tax structure?
Kanavas: The paper industry is basically shutting down and moving to Georgia over the next decade because of regulatory and tax reasons. Whole chunks of major industries are leaving for tax reasons. We have a responsibility to improve the tax climate and make sure the infrastructure is there to grow and that includes the litigation climate?
Clark: What is the most positive thing about Wisconsin's business climate?
Kanavas: The most powerful long-term force for our economy is the amount of intellectual property our people are generating. We have what everyone wants, and that is smart people. We need to harvest that and build companies based on great ideas and people thinking about leading-edge stuff. That means having initiatives like the Biomedical Technology Alliance in Milwaukee and the Institute for Discovery at UW-Madison or the efforts in paper in Green Bay. These things are essential to our future. We are literally going to link up IP, capital and existing companies to create new products and new companies.
That innovation is what will be the bellwether for our state. If we can see that kind of collaborative effort around the state, we will do fine. If that is given short shrift in policy, then we are dooming the future of this state.
Clark: Any other concerns?
Kanavas: We also have to answer the question of what is going on in Milwaukee with the education of African-American kids. If those kids don't get educated and become meaningful participants in the economy, we will be in for a world of hurt.
Milwaukee can either be an anchor or an engine for this state. Those kids will largely be responsible for making it an engine, and we have to treat it that way. I am going to continue to push aggressively for education reforms to make sure those kids can be productive.
Clark: Are there any meteors coming our way that might harm the economy?
Kanavas: What is happening overseas with the labor market will continue to put pressure on us. We have the most expensive labor in the world. If you look at the labor market as a pond, and you drop a pebble in the middle, the ripple effect moves out. It continues to be a major, major issue in terms of our ability to compete. That is why it is so important to add value with whatever you are doing if you want to continue your high standard of living.
From education to auto manufacturing right on down the line, people need to be cognizant of the international labor market. Or they will find that they will be downsized to limit their effect on the enterprise. You are seeing more virtual schools in America for one reason - because of expense.
Clark: Are you optimistic about that state's economic future?
Kanavas: Yes, if we implement these Invest Wisconsin reforms. We have an extraordinary opportunity here, but you have to till the garden every day. This administration has been like a light switch. When it is political, they turn on the light. Then the lights go off and the attention drops off. That is not the way you should do this.