Q&A: Economist Craig Rogers

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Craig Rogers is an associate professor of economics at Canisius College. Beyond his academic credentials, he has a wealth of experience in urban economics thanks to his stints with the college’s Center for Entrepreneurship and  the Office of Urban Initiatives.

Rogers, 47, is a native of Niagara Falls. He earned undergraduate degrees in economics and business administration from SUNY Brockport. Rogers earned a masters of business administration and doctorate in geography from the University at Buffalo.

Investigative Post Editor Jim Heaney interviewed Rogers on April 22. A 4 minute, 29 second video clip featuring the highlights of that interview is posted above. The full 19 minute, 50 second interview is posted deeper in the transcript, produced by Ivy Rivera, which has been edited lightly for clarity.

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Heaney: I’ve had a lot of people on here talking about the economy, the state of the regional economy. The conventional wisdom that’s come out of that – everybody from Jordan Levy to Jim Allen and some other folks – is that the economy is getting better, that we’re getting smarter when it comes to economic development in this town. We benefited from not having a bubble to burst, so we didn’t have as far to fall. So I think, generally speaking, the economy and our efforts toward economic development have gotten positive trending grades. You work a lot with data, you’re different from most of the folks that I interview because you’re really focused in on the numbers. What do the numbers tell you about the state of the regional economy?

Rogers: As I mentioned when we met a couple of weeks ago, it depends on who you ask. Roughly a third of the populous in the Buffalo metropolitan area are doing well. When I say, “well,” their real income is increasing. Approximately a third of household’s real income has not changed. It hasn’t decreased, but it hasn’t increased.

Heaney: People are just treading water?

Rogers: Treading water. And then you have that one third of the populous whose real income has actually decreased. So, it’s not a question that has a simple answer. It’s a multi-faceted question that has multiple answers. And so, when people say that the economy is improving, the first question I ask them is: For whom?

One of the misnomers, and I would actually put it in the urban myth category, is that the city of Buffalo is the third poorest city in America.

Heaney: Who, and why, is the top third doing better? And who is, and why are, those folks who are not doing as well?

Rogers: The simple answer, although it’s really complicated is that one-third of households tend to be better educated and have better labor market networks and connections. The bottom one-third are least, or less educated. I know that’s a simplistic answer, but if one wanted me to pinpoint one factor, I think you probably would start there.

Heaney: You’ve also got some thoughts that go against the grain when it comes to poverty. I’ve been one of the reporters who have been writing for years about Buffalo based on Census data – the second poorest, the third poorest, the fourth poorest metropolitan area in the country. You view that as misleading in the sense that it’s over-simplistic. So, my question is: If we’re not second, third, fourth poorest – where are we? And, what sorts of measures tell you that?

Rogers: One of the misnomers, and I would actually put it in the urban myth category, is that the city of Buffalo is the third poorest city in America. That is based upon on of the most flawed measures of poverty, which is called the “official poverty rate.”

Now, I won’t go into the actual construction but, suffice it to say that, it simply does not measure poverty. One of the challenges with some of the data being used by City Hall, and others pertaining to the poverty rate is that it’s easily calculated, but it’s misplaced. Let me give you an example.

Right now in the Buffalo metropolitan area, the official poverty rate is approximately 22 percent. But that’s an average. And if you’re going to use some type of average, you have to construct what’s called a “confidence interval,” a high benchmark and a low benchmark. For the Buffalo metropolitan area, approximately 25 percent would be the high benchmark, and about 17 percent would be the low benchmark. I would have strong reservation if someone told me that there were no other major cities in the U.S. that did not have a poverty range that fell within that range there. And so this notion that the city of Buffalo is the third poorest, I think, leads to some misplaced public policy.

Now, with that said – Is the city poor? Without a doubt. Third poorest? No. What we need is better poverty measures. With the Official Poverty Rate, one of the major disadvantages is that it doesn’t speak to this issue of depth of poverty. So, let me give you a quick example of that: Let’s say the poverty threshold is $25,000, and that you have a household that has an income of $24,999. They’re just below the poverty threshold and we say they’re poor, versus a household that may have a $13,500 income. The poverty rate does not take into consideration the disparity in that range there.

Taxes, overall, tend to be a relatively small portion of the cost of production of goods and services.

Heaney: Getting out of poverty is part of what’s driving economic development criteria in this town, at least in theory. The reality is … which developers are going to be well-served by subsidies? But, in theory, dealing with poverty is part of it. Give me your critique of economic development efforts in this community, a little bit historically, but right up until now. How smart of a job is government doing in trying to raise Buffalo out of its economic doldrum?

Rogers: If they were in my class, I would have to subscribe to them an incomplete with a deficiency warning. I think there are some positives, but we haven’t learned from the lessons of the past.

Heaney: What are those key lessons that have not been learned? Where are we getting it wrong? What’s the faulty thinking behind the decision making?

Rogers: That any individual, economic developer, planner – any individual economic development organization – has this crystal ball that can predict the future, that this industry is going to be a growth industry versus that industry. It is, I think, one of the unfortunate undercurrents of economic development that there is this forecasting of growth industries when, in fact, we do not know, with certainty, which industries are going to grow and which industries will not grow.

Forty years ago, if someone were to have to described this industry that will combine technology information, you know, built around what we now know with the Internet, they would probably have been thought of as a radical. Today, it’s mainstream. And so, this notion that we somehow have the ability to predict growth in X industry versus Y industry is challenging, to say the least.

Some of my strongest criticisms of the current New York State $1 billion investment in the Buffalo metropolitan area – I think it misses the point on several areas. One, as we mentioned a couple of weeks ago in our conversation, nowhere in that document is economic development explicitly defined. There are some loose references to income, to production to income, but nowhere is economic development defined. This becomes a public policy question versus an academic, technical definitional question. If what you are attempting to do is loosely define, then how can you develop measures to measure that? Presents a problem.

Heaney: You’ve mentioned to me that one of the fallacies you think the economic development policies are being driven by is the perception that politicians have of the role of the taxes play, or don’t play, in decisions by companies to relocate or expand here.

Rogers: There are voluminous studies done on the impact of taxes and, more importantly, what is called the marginal tax rate, and how it impacts the location of businesses and their business location decisions. And so, it is not a simple answer. Taxes, overall, tend to be a relatively small portion of the cost of production of goods and services. That is not to say the marginal tax rate does not impact, what we call intra-metropolitan decisions.

I’ll give you an example: A company decides to locate in metropolitan area A. Within metropolitan area A, there are municipalities that have different marginal tax rates that will impact where their firm locates within that intra-metropolitan, within the region. But the firm has already decided to locate in the region. And so, the issue of how taxes impact the location of businesses is rather complicated, it’s not straightforward.

Heaney: So, in a nutshell, politicians think the taxes play a bigger role than they actually do?

Rogers: Yes.

Heaney: Do policymakers really understand the dynamics of the job market?

Rogers: No. In fact, if I had to give a grade on that, it would be an “F.”

Heaney: An “F?” What don’t they get?

Rogers: The notion that the job market is predicated on proximity of firms to the populous.

Heaney: In other words, the company that locates here is going to hire here?

Rogers: Exactly.

Heaney: And, how does it really work?

Rogers: It works by networks – personal and social networks. The higher level of employment opportunity, the more important these networks are. In fact, it’s one of the reasons institutions of higher learning charge what they charge, because part of what is being developed within the higher ed is not, solely, intrinsic knowledge, but developing networks.

Heaney: So, in other words, it’s not what you know but who you know?

Rogers: It’s both. And sometimes, who you know is more important than what you know.

And so, getting back to the question that you posed and how it has significant public policy implications – the federal government and the state government have various forms of enterprise zone legislation, where businesses who locate in distressed areas are given tax credits with the promise of hiring local residents. And, the data has been pretty clear: These firms do not hire local residents.

Heaney: So, it’s bad money after good?

Rogers: Yes.

Heaney: OK. Let’s talk about the governor’s Billion to Buffalo initiative. Again, a lot of people are singing its praises. You see a lot of holes in it. There were three points, in particular you mentioned. One, that it’s just not defined. You need to be able to measure outcomes, and if you don’t really have a defined outcome, it’s tough to measure against it. You’ve also mentioned … what the governor’s people are talking about here is, partly, building off clusters. Different type of industrial clusters. And also, trying to grow a more entrepreneurial class here. And you see some difficulties in both of those areas.

So, let’s talk first about this whole notion – and it’s kind of conventional wisdom now in the economic development field – that you take a region and identify what its core strengths are, what its clusters are, and then you build off those. What’s the problem with that? I mean, a lot of people believe it, including the folks that are driving what promises to be a billion dollars worth of public sector investment subsidy. 

Rogers: Well, it doesn’t get to the question which I think is fundamental to developing economic development and economic growth: What is the comparative advantage of our cluster versus someone else’s cluster?

Heaney: And we’ve got to be better at it to succeed?

Rogers: We have to be more efficient, better at it, to have sustained growth. As an example: You cannot name a major city in a metropolitan area, within the United States, that does not have a high-tech medical cluster.

Heaney: Like the Buffalo Niagara Medical Campus?

Rogers: Like the Buffalo Medical Campus. So, given that, what is our competitive advantage?

Heaney: Do you know the answer to that?

Rogers: I have yet to get the answer to that question.

Heaney: Do you have a hunch? Do we have an advantage?

Rogers: I hope so.

Heaney: Well, after a billion dollars worth of investment, one would hope so. Yes.

Rogers: The common response when questions like that have been posed is: ‘Well, we have one of the leading cancer research institutions in the U.S. and we’re going to build upon that, or it’s going to be synergy and spill off.’ And I go, “Well, that’s fine. But, certainly other major metropolitan areas have their own Roswell.”

So, what is unique about ours that’s going to lead to the type of economic development spin off that we all hope. And, if we cannot actually answer that question, then I go, “Well, you know, maybe we should start there.”

Heaney: The small-business class, the thinking is that there’s not enough venture capital. There are not enough small-business owners. There’s not enough innovation going on here and we need to, basically, grow our own. What’s driving economic decision making now, and how could a larger entrepreneurial class change that?

Rogers: Those certainly are challenges that would need to be addressed for the metropolitan economy to get on a more stable footing. Let me take the small business angle, first. There is a small distinction between entrepreneurship, and small business. They are not one in the same. And so, we need to be wary of the differentiation.

The use of tax incentives, I think, have to be better thought out.

Heaney: Make the clarification.

Rogers: If we’re talking about employment growth led by business development, then we want to focus on development of small, locally owned businesses. The entrepreneur may have several ventures, and may be self-employed. That self-employment may never lead to a small business employing several people. So, simply being an entrepreneur does not necessarily mean that one develops an entity that employs multiple people. We have to be careful there. It’s not one in the same.

Within the Buffalo metropolitan area, the growth in employment is not led by small, independently owned businesses. It’s actually led by small businesses, or businesses that are part of much larger, multi-national corporations. The focus of control is outside of Western New York. So, certainly, growing small, independently-owned is a mainstay in developing a diversified, sustainable regional economy. How do we go about doing that? We certainly want to have a regulatory tax relief. We want to have a transparency in tax policy. I happen to be a believer in less-is-more.

Heaney: Less being? Less what?

Rogers: Less public sector involvement in economic development. That we cannot time the market. That we do not know all the nuances in a free-market economy. So, I think there’s a limited role that the public sector should play in economic development. I think it should be finely tuned, it has to explicit. So, let me give you a practical example of what I think some of the challenges are, and some of the possible solutions. Instead of providing subsidies to a particular industry, I think it should be across the board.

Heaney: What do you mean, “across the board?”

Rogers: Recent legislation has just been passed in New York State where IDAs are pretty much exempt from giving subsidies to retail development. On one hand, you go, ‘OK, well, maybe that makes sense’. But, on another hand, you look at the percentage of businesses in Western New York that are in the retail sector and you go, ‘Well, wait a second.’

Heaney: Yes, but the whole thinking is that retail doesn’t generate new wealth for the community. It just shuffles it around. If you don’t buy a dress here, you buy it there. If you don’t buy a pizza here, you’ll buy it there. It’s not like an export business where new money comes into the economy.

Rogers: There certainly is a part of that, but if part of your growth in business is in the retail industry, then you have to build upon what you have. So, I think it’s a misplaced strategy.

The use of tax incentives, I think, have to be better thought out. I think there has to be a fine tuning of the thinking concerning the use of incentives, and I think we have to try and create a more level playing field so that elite power brokers and land barons are not the favorite sons and daughters – that other entities are at the table, and participating fully. I think there’s a lot of work that can be done.

I think the governor’s $1 billion investment in Western New York is a starting point. But again, as I said earlier, I think right now it’s incomplete. And if I had to give it a grade, it would be closer to a deficiency warning.

Heaney: Ok. So, we’re not there yet?

Rogers: We are not there yet.