Economic experts weigh in on Valley

Local business leaders can't make heads or tails of President-elect Barack Obama's stated commitment to revive the country's sagging middle class.

While most agree that at the very least a stimulus is needed, where his administration will take the local economy is anybody's guess.
At the moment, the question everybody still wants answered is, "When will the financial crisis end?"

This past week in a panel interview at The Brownsville Herald, three area business experts weighed in on what lies ahead for the Rio Grande Valley's economy. Participating were Malki Mostafa, assistant professor in the University of Texas-Brownsville/Texas Southmost College School of Business; financial manager David Merrill; and Gilbert Salinas, director of marketing and communications for the Brownsville Economic Development Corp.

"It's kind of like all the water was drained from the Laguna Madre and everybody is left sitting in the mud," Merrill said. "This past month it didn't matter who you were, everybody was hurt."

By now it has been well established that an overall lack of credit has exacerbated economic woes, and that credit is hard to come by because of a general lack of trust within the financial community itself.

Merrill likened the absence of confidence to a sudden disappearance of traffic laws.

"If you can't trust that the other car won't turn into your lane, maybe we don't even drive," he said.

Banks are operating under a similar degree of distrust, and the government's efforts to restore confidence hinge largely on injecting massive amounts of money into ailing or failing financial institutions.

Economists and business leaders are hesitant to predict what effect those bailout funds will have on resurrecting the economy because the crisis was not the result of one simple problem. Several areas of the economy failed in what members of the panel described as a chain reaction.

To reverse the damage likely would require more than a quick fix.

Salinas believes the first priority should be job creation.

"We need the real meat-to-the-bone jobs," he said. "If we don't get that, we could see ourselves back to where we were in the early '90s, which was pretty bad."

Unemployment through the 1980s and the early part of the '90s soared past 20 percent. A return to those days is unlikely, but a return to the flush, freewheeling period that followed passage of the North American Free Trade Agreement may be just as unlikely.

Salinas noted that the game has changed. No longer can the Valley simply attract businesses based on the low cost of labor. That may still be the case within the United States, but not within the global economy.

"If we continue down that path, we're just lying to ourselves," Mostafa agreed.

The Valley, however, is uniquely positioned to capitalize on renewable energy, including wind, solar and even algae for diesel, he said.

"We can be known for those things, but we are not looking at all these opportunities," Mostafa said.

Resource rich, cash poor
While the elements for a successful local economy may be in place, the biggest hurdle is finding venture capital, panel members agreed.
And with banks largely unwilling to loan money for such "risky" investments like renewable energy, businesses will have trouble getting off the ground, even for the most innovative ideas.

In fact, earlier this year a prospective business showed considerable interest in launching an algae-for-diesel project. The project ultimately failed because it couldn't make the money numbers work, according to Salinas.

"We have a natural base, (but) we don't have the sort of venture capital found in Austin, Houston and Dallas," Merrill said.

Another approach is to identify where the economy is moving profitably and finding the Valley's place in it.

"If I was a gambling man, I'd put all my money in health care," Mostafa said.

A growing population and government-sponsored health insurance is credited with growing the health care industry in the region, according to economists at the Federal Reserve Bank of Dallas.

In 2006, health care jobs accounted for 22 percent of employment in Brownsville and 21 percent in McAllen.

And the Texas Workforce Commission forecasts that between 2004 and 2014, health care jobs will increase 46 percent in the Lower Rio Grande Valley.

But if health care is the safe bet, then engineering would be the long shot, panel members said.

"There is plenty of opportunity out there for clever engineers," Merrill said.

Opportunity, perhaps, but not financing.

The Valley's economy has come a long way in a relatively short period, Mostafa said, but uncertainty clouds its future.

The success or failure of the bailouts should go a long way toward bringing the Valley picture into focus.

"I didn't view it as a bailout as much as a rescue," Merrill said. "We believe this can work, but the proof is in the pudding."