Industries

1986 versus 2016

Baliles and McAuliffe discuss how Virginia’s economy has developed and why it still needs to change

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Print this page by Robert Powell

Virginia’s economy has been transformed during the past 30 years and could change even more in coming years.

To see where we have come from and where we are going, Virginia Business interviewed former Gov. Gerald Baliles and Gov. Terry McAuliffe.

Baliles, a Democrat, served as governor from 1986 to 1990. He had been in office fewer than three months when Virginia Business published its first issue in March 1986.

Baliles’ years in office are probably best remembered for a $422 million-a-year transportation funding package that passed during a special session in 1986. Another comprehensive transportation funding bill wouldn’t pass again until 2013.

In his interview, Baliles says that Virginia in 1986 was ill-prepared for the economic changes it was about to face. That was why his administration put high priority on three building blocks of economic development: transportation, education and trade. Many of the traditional Virginia industries that have faded in the past 30 years — tobacco, textiles and furniture-making — already were showing strain in the late 1980s.

After his term ended in 1990, Baliles practiced law at the firm Hunton & Williams, largely working on aviation and international law. Then for eight years, he was director of the Miller Center at the University of Virginia, which specializes in presidential scholarship and public policy. He retired in 2014. Baliles and his wife, Robin, live in Charlottesville.

McAuliffe became the 72nd governor of Virginia in 2014, after heading a Democratic ticket that swept all three of the commonwealth’s top offices the previous fall.

McAuliffe, who was a young bank chairman in Washington in 1986, has made economic development a high priority of his administration. His news releases keep a running tally of the number of deals closed and jobs created since he took office.

When Baliles was governor, Democrats held sway in the General Assembly. McAuliffe, on the other hand, has faced stiff opposition from a Republican-controlled legislature, especially on highly charged issues such as the expansion of Medicaid.

He has had more success in promoting economic development issues, although a bad deal involving $1.4 million in state incentives has prompted extra scrutiny of how well his administration vets business prospects.

McAuliffe talks frequently about the need to create a new Virginia economy that is less dependent on federal spending. This new economy emphasizes the use of innovation and new technology to make the commonwealth a national leader in areas such as cybersecurity and personalized medicine.

Virginia Business interviewed Baliles at his office in Charlottesville on Dec. 31.

“Today’s governor’s economic incentive fund did not exist at the time. Few other programs were available for use.”  — former Gov. Gerald Baliles

Virginia Business:  What were some of the major economic issues that you were dealing with in 1986?

Baliles:  Well, let’s start with transportation needs, including roads, airports and the ports.  They were not ready for significant changes in economic development and business opportunities.  The education system was not business-ready.  Teacher pay was low.  The state was not providing full funding of its share.  There were few training programs, few links between business and education.  Incentives were few.  Virginia was not ready for the emerging international economy.  The European Union was a few years away, but there were clear signs that the international trade picture was going to be part of the lifeblood of the global economy, and Virginia would no longer be competing with states within the Union but with many countries beyond our borders:  China, Germany and India.  So the way I saw it, Virginia was vulnerable to economic changes.   

 

VB:  Several industries that were big in Virginia 30 years ago — textiles, tobacco and furniture-making — have declined sharply since then.  Were there signs of trouble then? 

Baliles:  Yes, definitely.  Tobacco was feeling the effects of the increasing public awareness of health problems.  Outsourcing and international competition were beginning to have an impact on furniture and textiles.  Textiles began to face pressure from the cheaper imports from Asia and Mexico.  They were affected by a strong dollar that existed at the time and the emergence of international trade agreements. 

 

VB:  What industries that are prominent today were just beginning to gain a foothold in 1986?

Baliles:  Obviously technology.  Cellphones were the sizes of suitcases, and computer systems were the sizes of small rooms.  The Internet was just becoming a tool for business, but there was no widely used email, no worldwide search engines. Other industries were gaining a foothold. The Virginia wine industry was in its infancy.  The tourism industry lacked coordination and an international reputation except perhaps for Colonial Williamsburg.  There was double-digit growth in information services; some health-care industries were just beginning in the ’80s; and businesses that were related to environmental compliance were just beginning.

 

VB:  How did Virginia compete for business projects then? 

Baliles:  Well, No. 1, we had superior geographical features: the deepest,  most significant deep-water port on the East Coast, our proximity to the nation’s capital (with Dulles being the gateway to international aviation) and the fact we are within a day’s drive of 60 percent of the American population.  Plus, the strong support of the business community gave us the ability to compete in the emerging international market. 

Trade missions were also a way to compete, and during my time in office, foreign businesses announced more than 100 new ventures or expansions in the commonwealth; that growth represented somewhere between $650 million and $700 million.  Exports from Virginia ports set a record.  In 1989, exports from Virginia accounted for 25 percent of its economic growth. 

In addition, I promoted international education within the state, the teaching of foreign languages and the creation of the Governor’s Foreign Language Academies that provided total emersion programs for high school students who wanted to enroll. We used schools that were closed for the summer … 

Then we created a partnership with the National Geographic organization to teach geography in our schools so that ultimately we would have a more competitive workforce to offer our businesses engaged in international trade and economic development. 

Today’s governor’s economic incentive fund did not exist at the time.  Few other programs were available for use.  There was a small industrial rail access program that was funded by the General Assembly occasionally, and there may have been a few special funding initiatives in the budget, but there were few programs that existed that could be used quickly and competitively in the marketplace.

 

VB:  What economic policies put into effect during your administration are bearing fruit today?

Baliles:  I’ll just list several. We created a secretary of economic development. We separated it from other functions and put the focus strictly on economic development and trade.  Today that department has been renamed commerce and trade.  We created a Southwest Virginia economic development grant program.  We started a state revolving loan program in ’88 for new and expanding industries.  We set up five small-business development centers to assist small-business owners.

We put an emphasis on agriculture industry throughout our state agencies.  We created a network of farmers markets that exists today.  Then we created something called the Virginia’s Finest trademark program that has been wildly successful.  

We set up a state commercial space advocate to start touting the potential for space flights.  We clarified the role  of the Center for Innovative Technology that was created under [Gov. Chuck] Robb’s administration.  It was controversial at the time, but I think it’s been largely responsible for attracting a lot of what are called “beltway technology businesses.”

Then there was the Virginia Israel Commission [which encouraged cultural and business ties between Virginia and Israel].  Then of course there were improvements in transportation … tripling the funding for all the road building that was going on in the state. 

 

VB:  How does your relationship with the General Assembly compare with McAuliffe’s today?

Baliles:  Thirty years ago my situation was different from what governors have experienced since.  No. 1, the executive and legislative branches were of the same party.  In my case, I had served in the legislature for six years.  I had served on the appropriations committees so I saw the budgets and the pictures and the images of where the problems existed around the state.  I knew people in the agencies of government down five and six levels, and in the legislature, I had served on committees for corporations, insurance and banking, agriculture, natural resources, as well as appropriations.  So that gave me a pretty good view of the state but also the people who served on those committees and where they were concerned about certain issues. 

Then as attorney general I had to represent them, so I knew something about the political process, the legal process, the legislative process and, during that course of time, friendships were formed that existed across party lines.  When I went into an area, say Staunton, it was represented back then by a Republican, Delegate Pete Giesen. I would call Pete when I was coming to town, saying, “I’m going to be there for an event. I want you to know about it.  I’d like for you to join me on the stage.”  It gets photographed. It helps him, it helps me.  So the relationships were quite good … 

I think that spending time on communication and friendships made a big difference.  But that’s true across the eras, across generations.  What was different then from now, I think, is that Virginia at the time probably prided itself as being more independent of national politics than is the case today, and people didn’t make politics their only life, which seems somewhat common today across the nation. …

The one thing about today versus 30 years ago is the constant but accelerating pace of events.  They can often overwhelm us and challenge our capacity to absorb the meaning of this rapid rate of change.

RELATED STORY:  Baliles talks about the value of context in politics and international trade.

 

The magazine talked with McAuliffe at his office in the Patrick Henry Building in Richmond on Dec. 18.

“I talk about cybersecurity. I talk about data analytics. I talk about human genome sequencing. These are the jobs of the future.”   — Gov. Terry McAuliffe

VB:  I wondered if you had any personal memories of what the Virginia economy looked like back in ’86.  You were a bank chairman at that time. You probably had a pretty good vantage point to see what the economy looked like back then.

McAuliffe:  Talk about a different economy.  It resembled nothing like today.  The Internet hadn’t been invented yet.  There were no data centers.  When I talk about building a new Virginia economy; all these areas that I talk about, none of them existed back then.  It was the old-structured economy of the past.  You know, investment banking had been going on and real estate was obviously a big play back then, but today is totally different.  I mean it’s just transformed with information.

 

VB:  Turning to today’s economy, you talk about the new Virginia economy.  Where do you want to take the Virginia economy?

McAuliffe:  This is what I talk about every day.  You know, Virginia is blessed:  27 military installations, the largest naval base in the world, the Pentagon, the CIA, Quantico, all huge dynamic assets for us.

But what we have realized is the spending levels in defense, as we’ve known them, which has really built the Virginia economy, are changing and aren’t going to be the same.  We’re still going to have obviously a lot of defense spending, but we’re not going to have it at the same level that we’ve had it in the past. I think it was $58.8 billion in Northern Virginia, $11.8 billion in Hampton Roads.  We have to use this time now because in 2011, 2012 and 2013 we lost $9.8 billion in direct defense contracts, most of it in Northern Virginia.  George Mason University said it could equate to a loss of 154,000 jobs.  We had a [federal government shutdown in 2013].  The effects of those actions are still rippling through our economy. 

So the point I always try to make is, we have to move away from [dependence on federal spending].  We’ve been very successful getting federal government business, but we have to bring in the 21st-century technologies.  I talk about cybersecurity.  I talk about data analytics.  I talk about human genome sequencing.  These are the jobs of the future. 

The one area the federal government will spend billions on is cybersecurity.  I want Virginia to be the cybersecurity capital in America.  It’s really us and California.  We have 450 cyber companies today, and the FBI cyber command is at Quantico.

Right now in Virginia I have 30,000 jobs open in the technology space.  Eighteen thousand of those jobs are cyber.  Those 18,000 jobs, starting pay is $88,000. So those 30,000 jobs equates to [$2.6 billion] of annual payroll that we’re not getting today. 

[The budget I released in December includes] a billion-dollar investment in  K-12 and higher ed.  Huge emphasis on cybersecurity, building these cyber centers of excellence, which we need to do.  I want every one of our community colleges to be a center of excellence, so a lot of investment. 

I talk a lot about renewable energy.  I just, as you know, did my first permit by rule for an 80-megawatt facility down in the Eastern Shore.  Let me tell you why renewable energy is important.  No. 1, it is important for the environment, but No. 2, someone is going to manufacture the solar panels.  We should do that here in Virginia ... 

[Reason No. 3 for investing in renewable energy] is that Amazon, Microsoft, Google have billions of dollars of investment in Virginia today, thousands of employees. … They make it clear that they will not put any more facilities in any state that will not /cannot deliver renewable energy to that facility.  So if we as a state want to be in the game of the Googles, the Microsofts, the Amazons, we’ve got to have renewable energy, and it’s not something we’ve really been out front on …

[Inova Health System has just bought the 117-acre former Exxon Mobil corporate campus in Fairfax County to be the site of its Inova Center for Personalized Health.]   This could revolutionize medicine.  … They can tell at birth through the genetic testing … what illnesses a child may be susceptible to or what they could do early on in treatment. I want us to be the global leader on that … 

My focus has been on the economy, growing, diversifying the economy, and we’ve had great success. I think 2016, from the handshake deals I have now, is going to be our best year ever, very optimistic. 

 

VB:  Is there an industry that you haven’t been able to crack yet?

McAuliffe:  I’ve tried aggressively to try to get an auto manufacturer.  I’m the ultimate optimist … I went up, quietly, secretly to meet with the chairman [of an auto company] twice.  We were in the running, we didn’t get it, and the reason is we had no supply chain in Virginia. 

So I don’t know if we’ll ever get into auto manufacturing. South Carolina, Mississippi, Georgia, all these Southern states many years ago got in the game, and I’ve tried hard, but we don’t have the supply chain …

 

VB:  Is there anything we didn’t cover that you want to add?

McAuliffe:  Did we talk about the veterans at all?  I should mention that because it’s a huge piece of our workforce … We have 800,000 veterans in Virginia, per-capita more than any state, more female veterans, more veterans under the age of 25, than any state in America. 

You want to talk about building a dynamic workforce, these veterans are highly motivated, disciplined, dedicated.  Ten [thousand] to 15,000 a year transition out of active duty into the veteran status.  I want them to stay in Virginia.  That’s why you’ve seen so much investment in my budget …  

Let them go to the community college and get a credential on code writing,  I can move you right into those jobs in Northern Virginia and start out at $88,000.  So I talk about putting career counselors for the veterans inside of community colleges.  We did a lot of investment to make sure that these veterans get credit for their active-duty military service, and we give them the credits they need in order to move them right into a skilled workforce.




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