Tom Power Commentary: “‘Transforming’ the Montana Economy with Coal Exports? Back to the Rear-View Mirror Vision of the Economy”

Arch Coal, one of the nation’s largest coal companies, is back in the news seeking the permits it needs to actually begin mining the Otter Creek coal it leased last year from the state of Montana. Permits will also be needed to build a railroad through the Tongue River Valley from Miles City to the coal deposits near Ashland, Montana. Arch Coal is also a partner in a coal port near the mouth of the Columbia through which this Montana coal could be shipped to Asia once it has passed through much of Montana, Idaho, and Washington.
Montana politicians of both parties as well as a variety of well-connected business interest are celebrating the economic benefits they see this coal mining and shipping will have for Montana. One enthusiastic politician claimed that “Increasing coal development in Montana will have a transformative effect on our entire state’s economy. The opportunity is huge, it’s here, and it’s now. To say ‘no,’ as the environmentalists would have us do, would be like tearing up a jackpot lottery ticket.”
Thinking about Montana’s economic development policy in terms of buying “jackpot lottery tickets” is a bit peculiar and disturbing since the chance of winning such jackpots is often one in hundreds of millions. That would hardly be the most level-headed and business-like way of trying to improve the economic well-being of Montanans.
But mineral developments are always presented by their proponents as “offers that are too good to refuse.” For that reason, citizens, also, should always be skeptical of such offers. So let’s look at this one.
If the Otter Creek Mine gets built and the Asian coal market holds up, it will initially employ 350 people to operate the mine. The new railroad and use of existing railroads in Montana would employ and additional 50 people for a total of 400 direct new hires.
Of course for people seeking to clothe their private business interests in the public interest, this direct employment is just the beginning. These are the jobs that one can go into the workplace and count. To these actual jobs are then typically added all sorts of “multiplier” or “ripple” or “spillover” effects that amplify the claimed total economic effect five to ten fold. In the case of the Otter Creek Mine the 400 direct jobs are claimed to blossom into a total of 1,740 jobs.
These 1,700 jobs are what we are told will transform the Montana economy.
In 2010 there were 624,000 jobs in the Montana economy. The 400 direct jobs associated with Otter Creek coal mining would represent six-hundredths of one percent of the total economy. That is a pretty tiny tail with which to wag such a large dog. The 1,700 claimed jobs including “indirect and induced” jobs would represent about three-tenths of one percent of all Montana jobs. It is highly unlikely that increasing employment opportunities by a tiny sliver of one percent could actually transform the Montana economy.
During the 1990s and the first half of the 2000s before the Great Recession clobbered us, the Montana economy was transformed in a significant way, but not by mining or exports. Between 1990 and 2007, the Montana economy added 12,200 jobs a year for a total of 190,000 additional jobs, 100 times as many jobs are the Otter Creek mine is claiming it will create. That did transform the Montana economy. Unemployment fell from levels similar to those we are are now experiencing, about 6 percent, in 1990 down to about 3 percent in late 2006.
Of the 12,200 jobs being added each year, only about 30 were related to coal and metal mining and only about 60 were related to durable manufacturing. The interesting aspect of that ongoing economic expansion and job growth was that it was not led by the traditional land-based activities that had supported the original European-American settlement of Montana, namely mining, logging, ranching, and farming. It was led, instead by the diversification of the Montana economy so that Montana businesses were supplying more and more of citizens’ needs and preferences and less of the income earned in Montana was leaking out to pay for imports. This was facilitated by the shift in consumer spending patterns away from purchasing primarily goods to more and more purchases of services that could be produced here in Montana by fellow citizens. Think of the increased expenditures on health services, entertainment, professional services, education and childcare, technical and computer services, etc. The slow but steady in-migration of new residents also supported a larger residential construction industry, also locally staffed.
One interesting and somewhat disturbing aspect of the push to “transform” our economy again by focusing on energy development and export is its “retro” character. It involves looking back into that hypnotic rear-view mirror at what we used to do for a living in Montana and imagining that revisiting that past would bring on a Montana economic renaissance. Stepping back into Hollywood’s or someone else’s nostalgic vision of a past “golden” era is hardly the basis for a sound economic development policy. It may be more comfortably dreamy than gambling on the purchase of lottery tickets, but no more likely to be effective.
Focusing our future on becoming a raw material supplier to the growing Asian economic behemoths is to step back onto the mineral industry roller coaster whose sickening booms and busts in the past left our communities passive company towns unable to take their own futures into their hands. Our economy has evolved beyond that and nostalgia is not enough of an excuse to step back on that unstable economic ride downward.

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