A surprise called 'high tech'

Surprise, surprise. Massachusetts, with an economy scorched in the 1970s, now blossoms -- at least compared with the rest of the United States. In fact, a hidden message lies in the Bay State's unexpected departure from the national economic recession: "follow me."

In 1980, the commonwealth recorded the lowest unemployment among the top industrial states, and remains a full two percentage points below the national joblessness average.

The secret to its revival, report business leaders, lies in an old Yankee tale:

. . . A lady becomes stranded on a back road when her buggy breaks down. A Massachusetts farmer happens by and proceeds to fix the vehicle. When the women offers to pay, the man accepts only $1.10.

Curious at the odd amount, the woman asks, "Why the ten cents?"

The reply: "Ten cents for the labor and a dollar for the knowledge."

It's that deep-as-granite Yankee know-how which has helped retool the Bay State into a new business mix called "the knowledge industry."

In the last decade, however, pity was heaped on New England's most populated state. It was drained by (1) competition from growing Sunbelt states, (2) an 80 percent dependency on imported oil, (3) two national recessions that walloped its "mature" economy, and (4) notoriety as "Taxachusetts," home of sky-high levies.

Today, the state's hit slogan "Make It in Massachusetts" is being re-written as "Made It in Massachusetts."

Bumper stickers stating "Have you hugged your businessman today?" are showing up. With a dozen or so office skyscrapers under construction in Boston, the crane has been named the unofficial bird. And the real powerhouse for the state's bright economic picture -- high-technology companies -- are more worried about how to cope with growth than how to egg it on.

"The performance of the Massachusetts economy in 1980 was mediocre on its merits but extraordinary good when compared to the rest of the US," concludes economists George I. Treyz of the University of Massachuesetts at Amherst.

Real disposable income (income after taxes) per person dropped 1 percent here , but fell over 3 percent nationwide. The Treyz economic model shows the state staying ahead in unemployment well into 1983. Still, Massachusetts personal income per capita is 7 percent above that in Texas -- a major high-tech competitor -- but the higher cost of living actually forces the real income level to be 28 percent below.

"In spite of a gloomy national picture, the State of Massachusetts will be performing well in the eye of a storm," claims Commerce Commissioner James F. Carlin.

And with Ronald Reagan as the nation's commander-in-chief, Massachusetts anticipates lucrative defense contracts -- nearly double what a state of its size should expect.

In three areas, Massachusetts is setting a pace for the nation: tax-cuts, energy conservation, and high technology.

"No state has changed as much or gone as far as Massachusetts since the mid- 1970s," states economist Thomas A. Barocci, head of a MIT study of New England business. The 1974-5 recession helped weed out weak industries.

Last fall, voters dealt a severe blow to the state's heavy tax reputation by passing the Proposition 2 1/2 referendum, which effectively reduces levies by about 9 percent. This came after a capital gains tax reduction and imposition of a 4 percent cap on increases in local spending which, coupled with rising taxes in the Sunbelt, help place Massachusetts closer to the national average in total tax burden.

If the "Laffer curve" theory of cut-taxes-and- end-stagnation works, it will be shown here.

But will the cost of doing business be reduced and money freed up for private investment? "You get used to a lot of government around and it's hard to get rid of it, says James M. Howell, senior vice-presdent for First National Bank of Boston. Welfare and employment aid, for instance, still top $2 billion in Massachusetts. "Embarrassing," says state Economics Secretary George S. Kariotis.

Besides progress in reducing taxes, the state's top selling points are the quality of its life style and work force, says Mr. Kariotis, founder of the high-tech alpha Industries.

The ability of this Pilgrim state to bounce back from adversity -- and its own mistakes -- rests on the versatility of its stable corps of scientists, skilled workers, professionals, engineers, designers, ready entreprenuers -- and proximity to a high concentration of academia.

"Massachusetts in many ways, has the characteristics of an industrious Japan, " says Commissioner Carlin, such as few natural resources, a skilled work force, and a small, well-populated area.

World demand for ever-cheaper computers and other products, such as telecommunications equipment, surged so fast in the late 1970s that Massachusetts high-tech companies had to stay put and expand within existing capacity. investments in high-tech more than doubled last year. With a nonunion labor pool in high tech and a favorable wage structure, the state was able to compete with North Carolina in wooing firms. The fastest-growing companies banded together under the Massachusetts High Technology Council (MHTC) to jointly attack the major bottleneck: skilled labor. Recruitment and training of widget wizards became the state's No. 1 problem, or rather, goal.

"We tell potential workers that high technology is around Boston -- not in it. Workers here can change jobs without changing zip codes. If they want to jump to another high-tech company, they just can drive down another exit on Route 128," says MHTC's recruiter B. J. Rudman. "It's hard to change high-tech jobs in Texas or if you are with IBM."

New company-sponsored training, such as the new Wang Institute, has become a virtual side-industry. "The basic rule of thumb now is to train your own," says Dr. Howell, although the state is attempting to dovetail its college system with high-tech labor needs.

While over half of the state's high-tech expansion was within Massachusetts during the past three years, the MHTC now projects over half will be outside the state up to 1983. "The companies are not unhappy with Massachusetts; they just want to move a little closer to the markets." says Howard P. Foley, MHTC president.

The shedding of old economy skins -- such as the 19th- century textile, leather, and shoe industries or the space contract business of the 1960s -- almost has become a habit in battered Massachusetts. With no natural resources to speak of, the state's strength lies in selling the skills of its 6 million residents -- the education level is above the national average -- while the product line changes.

The top dilemma confronting the state now: When does the current boom taper off? "Let's face it. High-tech is the only act we got besides tourism and fishing," says Mr. Kariotis. "We have to nurture a wider 'brains industry.'"

In 1981 the rapid-growth companies in high technology -- some double every year -- are expected to "catch their breath," losing some business because of high interest rates. But the clear trend is toward the "information age," transforming the Home of the Cod into the Home of the Chip.

"Chips" are those tooth-sized silicon wafers of computer intelligence that are driving up office and factory productivity here, as well as anywhere Massachusetts sells its cost- saving semiconductor wares. An unusual 36 percent of manufacturing employees in the state now work in high-tech.

High growth among the high-tech industries such as Wang Labs and Prime Computer have kept Massachusetts apace and slightly ahead of the national economy.

In addition, Massachusetts acts as a greenhouse for budding companies. Ever since the Russians sent the Sputnik satellite aloft, Boston bankers have stretched out their necks to back local entrepeneurs. Even high interest rates do not deter venture capitalists from jumping on good ideas.

Birthplace for the American Revolution, the Boston area is proving to be home for the electronics revolution. Spinoffs from expanding computer companies read like a chapter from the Old Testament: Digital begat Prime, which begat Apollo, which will beget. . . .m (Digital is at present the national leader in the minicomputer industry.)

In the last two years, for instance, 21 percent of the new companies that grew into the Fortune 1000 list were from Massachusetts, with 16 percent from California and 12 percent from New York. Of the nation's 100 fastest growing companies in 1980, the Bay State had twice as many per capita as California, New York, and Texas, and three times more than states like Florida and Maryland.

Newer companies generally are good job creators -- one reason why the state enjoys low unemployment. Mature firms tend to concentrate on cost management instead of labor-intensive expansion.

"If national thrust in research and development comes back, it will be right here in Boston," says First National's James Howell.

Besides high-tech's role in the economy, Massachusetts businessmen now sense a new government climate. "Fifty percent of the problem was perception and attitude," says Dr. Howell. Adds Economics Secretary Kariotis: "We used to love to knock ourselves."

While much of the groundwork for success was laid down during the 1975-79 term of Gov. Michael S. Dukakis, the present administration of Gov. Edward J. King is often given an "A" for effort and follow-through. His pro-business, redtape-slashing reputation preceded him from a successful term as head of the Massachusetts Port Authority.

Governor King's "new" Democratic policies resemble President Reagan's: Help the poor by boosting job-creating business. So far, however, Mr. King remains frustrated that, despite an expanding economic pie, the state has not been able to lure a large number of companies into inner cities, where unemployment remains high.

Both Messrs. King and Dukakis helped create an alphabet soup of business-support operations. One example is the Massachusetts Capital Resource Company (MCRC), which pools insurance companies money for investing in job-creating ventures in return for tax relief to life insurers.

Still, Massachusetts reflects trends in other older industrial states: 19 th-century cities in the midst of decay are juxtaposed to growing, thriving suburbs. When the bottom fell out of capital spending in old urban areas during the early 1970s, a host of private/public schemes were tried to revive these centers, such as declaring a national urban park in Lowell, enticing a few computer firms to set up shops in high- unemployment areas of Boston, and receiving more than the state's fair share of UDAG grants.

"This is no utopia yet," says Mr. Kariotis, pointing out that economic growth without adequate distribution of jobs is not the best growth.