Rhode Island’s Governor Uses Her VC Chops to Boost the Economy

(Bloomberg Businessweek) -- Gina Raimondo is on the floor, cheek-to-cheek with constituents—only these constituents didn’t cast the votes that got her reelected as Rhode Island’s governor last November. They’re East Providence preschoolers listening to her read Too Many Carrots, a children’s book where the carrots symbolize unbridled wealth. “So do you think sharing makes everything better?” she asks. They answer with unanimous assent.

Thanks to Raimondo, the smallest state in the U.S. is on the rise. When she arrived at the Capitol in Providence in 2015, Rhode Island ranked in the lower half of U.S. states in economic health, according to the Bloomberg Economic Evaluation of States index that tracks employment, tax revenue, personal income, and other measures. It is now above average. During her time in office, for example, unemployment decreased from 6.7 percent to 3.8 percent—the lowest rate in 30 years. “I feel like I’ve taken the trajectory of Rhode Island and changed it,” Raimondo, 47, says during an interview in her sage-colored office.

Rhode Island’s Governor Uses Her VC Chops to Boost the Economy

Voters seem to agree. Not only is she the first gubernatorial winner of a majority in more than a decade (52.6 percent), she’s the first woman to be reelected to the position as well as the first Democrat elected to lead the Ocean State since 1991. The Harvard-educated economist and Rhodes scholar is effectively writing a turnaround case study in how a state government with little going its way can become something of a benchmark. Her three-pronged strategy: create fiscal stability, invest in education and infrastructure, and recruit companies—relentlessly.

Rhode Island’s Governor Uses Her VC Chops to Boost the Economy

That last part comes naturally. Raimondo co-founded the venture capital firm Point Judith Capital in 2001, the only Rhode Island firm then devoted to financing new businesses. She stepped into politics in 2010 by successfully running for general treasurer after widening deficits resulted in budget cuts that threatened to shutter hundreds of local libraries, including the one favored by her two children and another where her grandfather learned English as a 14-year-old Italian immigrant. “We were headed in the wrong direction,” she says.

As her first order of business, Raimondo confronted labor unions that supported her own Democratic Party about their pension debt—fraught politics, to be sure. Their pensions, she told them, wouldn’t survive their unfunded $7 billion liability, the second-highest in the country on a per capita basis. She said they could settle for either “a quarter of a loaf or none.” The unions still refused to budge.

Amid that standoff, Raimondo announced her candidacy for governor. In a heated three-way race, voters lifted her to the statehouse with 40 percent of the vote. Soon after her election, she solved Rhode Island’s pension crisis—without having to raise taxes—when the two sides reached a settlement in state Supreme Court. “Gina Raimondo led Rhode Island to enact the boldest pension reform of any state in recent years,” wrote Josh Barro in the Washington Examiner in 2012.

As governor, Raimondo immediately set out to improve the state’s education system. “The policymaker in me, the economist in me, the businessperson in me knows it’s a no-brainer to invest in education,” she says. To reverse a brain drain, her initial budget relieved graduates from any Rhode Island-based college or university of their student loans—as long as they agreed to live and work in the state for four years in jobs related to science, technology, engineering, and mathematics (STEM). The Providence Journal rated the so-called Wavemaker Fellowship “a promise kept.” A year later, her government guaranteed two years of free college or community college to every in-state student, tripling the community college graduation rate. More recently, Raimondo’s “CS4RI” initiative makes Rhode Island the first state poised to bring computer science into every public school. To help pay for these programs, revenue from taxes increased 17.3 percent over the past four years.

Rhode Island’s Governor Uses Her VC Chops to Boost the Economy

Yet the single best investment for long-term economic prosperity are her 4-year-old constituents, says Raimondo, who cites the Brooking Institution’s April 2017 report, The Current State of Scientific Knowledge on Pre-Kindergarten Effects, when discussing the importance early learning plays in shaping brain development. “You shouldn’t have to be rich or lucky to get your kid into school,” adds Raimondo, who’s tripled the number of pre-K classes in the state and also guaranteed that every child can attend all-day kindergarten. Rhode Island allocates $14,889 per student, or 138.3 percent of the U.S. average and the ninth-highest figure in the nation.

Now that she’s earned four more years, Raimondo wants to continue laying the foundation for a new middle class—one with 21st century jobs that pay at least $60,000 a year. A lifelong Rhode Island resident, she’s seen scores of middle-class jobs leave the state. “Rhode Island, forever, was manufacturing,” she says. One of those outsourced positions still stings—the one her father held at Bulova’s once-bustling watch factory in Providence until his job was moved to China in the late 1970s. She also recognizes tomorrow’s jobs probably won’t be in jewelry manufacturing. “I want to be the one that began the transition of our economy from low-skill, low-wage manufacturing to high-skill, high-wage tech, health care, and cyber,” she says.

To accomplish that, Raimondo abides by a simple rule: She never meets a chief executive officer she doesn’t like. In total, Rhode Island has recruited 30 companies, among them GE Digital, Johnson & Johnson, Virgin Pulse, and Cambridge Innovation Center. In the process, she has helped create 3,000 jobs—most of them in STEM-related fields—with an average annual salary of $65,000. “It’s true we don’t have the top-top [talent],” she says, “but we’re not just the haves and have-nots [anymore].”

One group that’s not a fan of Raimondo: truckers. Because of the state’s location halfway between New York and Boston, “we had the worst roads in the country,” she says. Her RhodeWorks program, started in 2016, added tolls on large commercial vehicles that maintain the state’s infrastructure. A federal judge recently dismissed a lawsuit by the trucking industry against the nascent truck toll system, and RhodeWorks already has completed repairs on more than 100 bridges.

A self-proclaimed believer in free-market capitalism, Raimondo doesn’t hesitate to be its sternest critic: “Capitalism as it is currently playing out in America is yielding such inequality that people start saying: ‘This isn’t working. Go for socialism,’ ” she says. She calls that a dangerous path and counters that her focus isn’t just on growth but also the value and dignity of work. “We have to find our way to a capitalism where, if you work full time, you’re not poor; you have health care and housing; and your kids can go to a public school that’s decent. If we can get ourselves to that place, capitalism will be sustained.” And maybe even look as good as Rhode Island. —With Shin Pei
Winkler, a Bloomberg Opinion columnist, is the editor-in-chief emeritus of Bloomberg News.

To contact the editor responsible for this story: Joel Weber at jweber66@bloomberg.net, Eric Gelman

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