New Mexico budget surplus provides opportunity to jump start economic development
Commentary: The last decade has been difficult for New Mexico. While our neighboring states have been able to attract new industries paying higher wages, New Mexico has stagnated. But now, New Mexico enjoys a record surplus, thanks to the boom in the energy patch. Add to this the recently passed $1.2 trillion federal bi-partisan infrastructure bill, with funds for roads, bridges, and especially important for us, high-speed internet.
All this can be a real game changer for New Mexico if our political leaders can take advantage of this once in a generation opportunity. But while have had an opportunity handed to us by oil and gas, there are obstacles. The Economic Development Department recently commissioned a study from the Center for Innovation Strategy & Policy to develop a strategy to move forward. While the tax revenue is flowing, there remain considerable hurdles as well. Some the issues identified are familiar: New Mexico is over-dependent on oil and gas production for state revenues and needs to diversify to other industries. Other obstacles are less obvious; for example, our state is the home to two national labs and a branch of the Air Force Research Lab. The research prowess of these is legendary. And they bring significant federal resources to New Mexico and help to attract high-skill knowledge- and technology-based workers.
But all is not milk and honey. The labs have considerable resources, and they use those resources to complete with New Mexico’s private sector for employees. Especially business in the technology and information sector find it hard to attract workers from the labs.
The labs’ ability to attract talent has crowded out private sector innovation in New Mexico. Rather than a private sector engaging in the creation, production and distribution of new products, businesses rely on the labs for innovation. Nationally, about 10% of R&D expenditure is federally funded; in New Mexico, 40% is federal.
The lack business innovation has hamstringed New Mexico’s private sector. Managerial talent that understands market dynamics and is able to adapt to a changing environment is critical to the development of an entrepreneurial ecosystem. We have not developed this in New Mexico.
So how to solve this problem? When you talk to businesspeople, they identify two issues holding back entrepreneurship in New Mexico. First is a lack of basic business and financial literacy among small businesses and start-ups. The Center for Innovation Strategy & Policy report recommends microgrants to improve websites, expansion of business incubators, accelerators and support of nonprofits specializing in business education that can provide training for entrepreneurs. A shout out here to my colleagues at Arrowhead Center.
The second barrier to entrepreneurship is the lack of access to financial capital. The report recommends using New Mexico’s two multi-billion-dollar Permanent Funds, which together are among the largest funds of their kind in the world, to provide funding for New Mexican startups and to provide matching funds up to 49% for investment in targeted industries.
Another suggestion from the report is for New Mexico’s universities to provide academic researchers with critical gap funding needed to take technologies from the laboratory to factory.
The hope is that the legislature, in a year where there are plenty of funds, will take advantage of the opportunity to invest in economic development.
Christopher A. Erickson is a professor of economics at NMSU. He currently holds the Garrey E. and Catherine T. Carruthers Chair in Economic Development. The opinions expressed here may not be shared by the regents and administration of NMSU.