The Washington area economy has survived major changes with relatively few serious problems. However, hidden under this hopeful conclusion are three developments that could cause problems in the future.
First, the economy remains heavily dependent on the activities of the federal government, and increasingly this dependence is on federal purchases and not federal payrolls. As a result, changes in federal procurement volume or policies could substantially change the area's economic performance. Second, the area is becoming more vulnerable to national cyclical changes, so it may experience employment declines in some future years. Third, the District of Columbia's employment base is being weakened by the reduced federal government role in the city and by the changing nature of growth in service- sector employment.
Some of what is happening is beyond the ability of local government officials or business leaders to change. Nevertheless, there is room for local action.
It must be recognized at the start that economic development efforts that concentrate on attracting individual firms or individual projects are unlikely to have much effect on either the total area economy or its major segments. The area's economy is so large that to maintain a 2 percent average annual growth rate, it must create more than 35,000 net new jobs per year. Although project-oriented efforts are useful, they alone cannot result in growth of that magnitude. Therefore, greater efforts must be directed at encouraging natural growth by the development and expansion of local businesses in all sectors and geographical parts of the area, and especially in the District of Columbia.
One way of promoting natural growth is to enhance the value of the area's existing businesses, especially in the technology-oriented sector, by aiding the other local firms to provide supplies, equipment and services used by them. As a longer-range goal, it may be desirable to encourage the setting up of manufacturing parks within the region to provide incentives for out-of-the-area suppliers to locate here.
An obvious asset from an economic development view is the Washington area's large, well-managed local governments. These governments are fiscally sound, with favorable credit ratings, good services and reasonable taxes.
Another asset is the area's labor force. It is young, well-educated and adaptable. But other metropolitan areas are rapidly moving to improve their own labor forces. If the shift from government to private-sector employment continues, further changes will result in the degree of job security, the types of skills that employers demand and the locations of jobs.
A more deliberate and planned effort to provide an adequate supply of labor with the right mix of skills is needed. The area must 1) continue to improve the quality of the public schools, especially in the District of Columbia; 2) improve post secondary education, especially two-year technical training to prepare people for technology-oriented employment; 3) make fuller use of the skills of minorities and women who appear to be underemployed; and 4) maintain a cultural and social environment that attracts young and well-educated people to the area.
Another of the area's natural advantages is its function as the nation's capital, which has brought benefits from federal employment and purchases, from the location of related businesses, and from tourism. But this advantage should not be taken for granted. Changes in federal employment, purchasing or space-use policies can cause either strong growth or local recession. For example, it would help avoid overbuilding of office space if plans to reduce federal rental of space could be announced well in advance and the reductions could be phased over several years.
While domestic tourism has become a bigger factor in the local economy, international tourism is still not as important to Washington as it is to many other national capitals, such as London and Paris. A program to improve the attractiveness of Washington to international visitors should be part of development plans.
An emerging strength is the development of a large number of technology-oriented firms, many spawned and sustained by government contracts. Expanding into commercial and international sales will help these firms sustain their -- and the area's -- growth.
This means maintaining a favorable labor force; strengthening the area's financial sector to ensure adequate local capital and services; and providing adequate public facilities, including transportation. While suburban traffic congestion could perhaps channel some employment growth back into the central area, or perhaps into more outlying areas, it could also retard overall growth of firms as well as of other sectors of the economy.
The area's local governments and businesses have an outstanding record of working together. The success with Metro, waste disposal and highway planning are but a few examples. Despite the potentially hazardous changes that have occurred in the area's economy and the fierce competition from other metropolitan areas, the area has proven in the past that it has the resources and the will to cope with change.