The State and the “Invisible Hand”: Examining Sustainable Economic Development in Rhode Island

1. The State and the “Invisible Hand”: Examining Sustainable Economic Development in Rhode Island Maysa Jarudi Environmental Studies Concentrator Senior Thesis March 13th, 2008

2. Background • Observing economic phenomenon: • The State Economic institutions making deliberate investment • The “Invisible Hand” Controls the market but cannot be observed directly • Greenhouse Compact of 1984 Outlined a vision for the economy in which greenhouses or incubators created incentives to foster industries • Rise of environmental cluster? -Massachusetts  ~ 10th largest industry (“Merger Brewing” Xconomy 8/27/07) -Environmental cluster in RI

3. Hypotheses • Economy is getting greener • Economic institutions are increasingly implementing environmental sustainability •Public investments (grants, loans) to green businesses are increasing

4. Question Is there evidence of growth in environmentally sustainable economic development in Rhode Island? If so, to what extent have economic institutions and tools promoted it? …the State or just the “invisible hand”?

5. Methodology • Rhode Island, 1984-2007 • Baseline: Greenhouse Compact of 1984 -Lack of a “successful fourth economy” -Significant declines in its manufacturing sector • Greenhouse Compact Recommendations: -Aggressive incentive programs -Turn R&D into marketable industries

6. Methodology, cont’d • Economic institution: RI Comprehensive Economic Development Strategy (CEDS), Priority Project System, Statewide Planning Program Data from CEDS reports, Priority Project criteria, and Priority Project Lists 1986-2007 • EDC Investments: Innovation, R&D Tax Credits, SBLF • Economic tool: Lending through RI chapter of the Small Business Administration (SBA) Data on all 7(a) loans 1991-2007 • EDC annual reports • SBA Gross State Product data • Incubators

7. Today’s PresentationTo what extent have economic institutions and tools promoted environmentally sustainable economic development? • How environmentally sustainable economic development is driven: CEDS Priority Project System • Detecting an environmental cluster: SBA Loans • Where can sustainable development be observed? • Recommendations

8. Economic Development

9. CEDS Priority Project System, Division of Planning Federal funds funneled into development projects -Ranges from $1 to 5.5 million -Proposals submitted and ranked based on criteria -Highest scoring projects  Priority Project List, under 10 projects 120  200 points -Represents state-driven economic development

10. Findings: CEDS Reports Is there evidence for a deliberate focus on sustainable development over time? • Late 1990s • Formal definition of sustainability, brownfields revitalization, development within built environment • Land Use 2025 (Rhode Island Division of Planning. 2006) • 10 points if project contributes to meeting one or more specific strategies

11. CEDS Criteria 1986-2007 Environmental Environmental factors Income Enterprise Zone Non-Environmental Job development potential Availability of non-required federal funds Area of influence Essential project studies Unemployment Labor surplus area

12. Findings: CEDS Criteria

13. Today’s PresentationTo what extent have economic institutions and tools promoted environmentally sustainable economic development? • How environmentally sustainable economic development is driven: CEDS Priority Project System • Detecting an environmental cluster: SBA Loans • Where can sustainable development be observed? • Recommendations

14. Small Business Administration (SBA) LoansIs there evidence that clean businesses are receiving greater share of loans over time? •Evaluating sustainability: Goldman Sachs (2007) ESG = Environmental, Social, Corporate governance Evaluate “E” and “S” 1991-2007: Presence of environmental firms Ethnic & gender diversity •SBA is an intermediary7(a) loans: $100,000 to $2 million 85% loss covered Flexible source of financing Risky projects & businesses (Greenhouse Compact.Volume One, Exhibit 24).

15. Findings: SBA Loans

16. Findings: SBA Loans •Share of loans to environmental businesses never rises above 5%

17. Findings: SBA Loans

18. Findings: Social Justice •Minority-owned businesses = 5-6% total businesses in RI

19. Findings: Social Justice •Women-owned businesses = 22-26% total businesses in RI

20. Key Findings • Strong trend for mfr/services • Strong positive social justice trend • Sparse evidence for environmental cluster

21. Today’s PresentationTo what extent have economic institutions and tools promoted environmentally sustainable economic development? • How environmentally sustainable economic development is driven: CEDS Priority Project System Criteria • Detecting an environmental cluster: SBA Loans • Where can sustainable development be observed? • Conclusions • Recommendations

22. Conclusions Is the economy getting greener? • Economic institutions reflect deliberate investment • Dialogue is growing on environmental sustainability, and implementation is strengthening • Reflects Greenhouse Compact recommendations • Public investments (SBA loans) to green businesses are patchy at best Future • Comparisons with other state and national data • Tracking of environmental scores on prioritized projects

23. Recommendations • Economic institution: Further implementation of Land Use 2025 & sustainability • EDC • Economic tool: Allocation process • Incentives for approved lenders • For both: Transparency and Self-evaluation

24. Acknowledgments Caroline Karp Thesis Advisor & Reader Center for Environmental Studies Glenn Bachman Thesis Reader Raven Business Group, Inc. Beth Collins Thesis Reader Rhode Island Economic Policy Council Norm Deragon Small Business Administration Bill McKenna Statewide Planning Program Wei Ying Wong Presentation Advisor Center for Environmental Studies Aaron White & Taryn Martinez Undergraduate concentrators Center for Environmental Studies