Steps to diversify New Mexico’s economy
Investing the state’s oil revenues strategically
My previous article showed how New Mexico’s economy and state revenues are tied to the ups and downs of the oil and gas industry. The inability to predict the performance of these industries from year to year makes it difficult for the state to plan large or long-term projects.
It is clear that the state must diversify its economy, so what are some steps policymakers can take to make it happen? This article is not an economic development plan — that would require more than 750 words — but it is a list of what policymakers can do to start to build that plan.
New Mexico has limited resources, therefore policymakers must be strategic in how and where they invest those resources. Basically, policymakers should examine what investments will have the highest rate of return or give the state the biggest bang for its buck. This plan includes the following steps:
Identify New Mexico’s competitive advantages.
Find out why industries have not already located or developed within the state.
Identify solutions to overcome these barriers.
Prioritize solutions by determining the cost and benefits of each.
The first step is to examine what makes New Mexico unique and whether these characteristics give the state a competitive advantage within a specific industry. For example, New Mexico has an international border that might give the state an industry advantage related to Mexico. If a manufacturer in Michigan is shipping products to a client in Mexico, it stands to reason that relocating to New Mexico would reduce shipping costs. With no significant investments, New Mexico could have an advantage over Michigan for businesses whose buyers are located in Mexico.
It helps if these advantages are 100% unique to New Mexico, but this is not a must. Both New Mexico and Montana have abundant attractive outdoor space, which means they compete for ecotourism dollars. However, because New Mexico shares a border with Mexico, the state has an edge attracting Mexican ecotourism dollars. Conversely, Montana has an advantage with Canadian ecotourism dollars.
The next step is to find out why these industries are not already operating in the state. Perhaps the Michigan manufacturer is worried that if it relocated to New Mexico, it would not be able to find enough trained employees. The company would certainly save money on shipping, but those savings might be offset by spending more on training. Another question: Why haven’t more solar farms been built in the state? With year-round sunshine, the state should be attractive to utility-sized solar investment. Perhaps a lack of electrical transmission lines to carry solar power to profitable markets is reducing investor interest.
With barriers identified, the state can then make regulatory changes or investments to solve these issues. Knowing that workforce is an issue, policymakers could increase investment in workforce development to help manufacturers train employees. To attract more solar farms, the state could make regulatory changes to allow electrical transmission lines on state property, or the state could build its own.
With specific projects identified, the state can prioritize by determining the costs and benefits of each. Constructing a state-owned electrical transmission line would have high upfront costs whereas regulatory changes — allowing private transmission lines on state property — would have a much lower cost. Both projects would allow the state to attract more solar farms, but one is more feasible than the other.
This should be a quick and easy plan for diversifying New Mexico’s economy. Yet why hasn’t it been done before? Many, if not most communities in New Mexico are already doing steps one through three. They know what industries they can attract and what they need from the state to make this possible. The problem is that each community is fighting over limited funding. This is why the fourth step is necessary, but it is also the most difficult. Prioritizing one project over another can be interpreted as prioritizing one community over another.
For this to succeed, it is necessary to add a step to the beginning of the list. Before the state does anything else, it must set aside specific funding for economic development projects. This funding should only support projects unrelated to the oil and gas industry, and the projects must show a clear return on investment for the state. By doing so, the state can ensure it is investing in projects that grow state revenues and diversify the economy.
This will not be an easy sell to the legislature. One of their key functions is spending and the ability to fund projects within their own communities. As elected officials, legislators are accountable to their constituents. It would be understandably difficult for individual legislators to support something that might pull funding away from their own communities. However, if the state is serious about diversifying the economy, this is the necessary first step.