What drives an economy is well summarized in the opening paragraphs of Adam Smith’s Wealth of Nations – the other great work published in 1776. Smith writes that the wealth of a nation is the product of the labor of its people and their purchases from other nations. Its wealth increases in proportion to the ratio of its production to its population size. And that proportion is enhanced by the “skill, dexterity, and judgment” of the labor and by the proportion of those producing to those that are not. In short, the more people producing and the better their products, the wealthier the nation. With those simple relationships, the most powerful force in human history –modern capitalism – launched two hundred years of upward advancement for people around the globe.
Modern capitalist economies succeed and prosper when all three fundamental building blocks of free enterprise are readily available. These are 1) skilled people; 2) adequate and appropriate materials and supplies; and 3) sufficient capital – money and financing – to support business investment. Without all three an economy struggles and stagnates. (A note must be added that a functional legal structure that maintains the rule of law, enforces contracts, and provides stable, protected property rights is the essential foundation on which an economy can be built.)
The good news is two of the three are readily available. In the modern world, money and financing are globally available – for worthy endeavors. Similarly, materials and supplies can be sourced from anywhere in the world and delivered “just in time” given modern technology and transportation.
That leaves only the first – available skilled workers – as a challenge. And, it is a local challenge. Yes, some work can be accomplished remotely or outsourced to a distant, lower cost location. But, those solutions don’t build the wealth of a nation like highly productive, local workers. Building a plentiful, high quality workforce is the best way to drive an economy.
Skilled workers, especially mid-skilled workers, are at the core of an effective workforce. Mid-skill workers today, those from excellent primary and secondary education environments, who have added focused, specialized skills through post-secondary training, represent the future path to a thriving economy and attraction and expansion of high value-adding jobs. High quality, skill based training and education up through and after high school should be the key educational goal for parents, students, educators, employers, and political leaders, if they want Arizona’s economy to prosper and thrive like it has for the last half century.
There is another important lesson for parents, employers, political leaders from the CEO of Gallup, Jim Clifton’s seminal book “The Coming Jobs War,” about the coming worldwide shortage of good jobs. Focus on those that create good jobs – the small and medium sized businesses that desperately need reliable, competent workers to help them meet the ever growing demands of their customers. Encourage them, support them, and they will create the good jobs we all want!
Doing those two things will drive Arizona’s economy for the next century.
— Alan Maguire is the president and principal economist at The Maguire Company, an economic analysis and public policy consulting firm in Phoenix.