An unexpected rise in Washington's unemployment rate last month lays extra weight on a key question in this year's gubernatorial race: What should the next governor do to get people back to work?

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An unexpected rise in Washington’s unemployment rate last month lays extra weight on a key question in this year’s gubernatorial race: What can the next governor do to get people back to work?

Even before news that the state jobless rate ticked up to 8.6 percent in August, Democrat Jay Inslee and Republican Rob McKenna were dueling over state government’s role in lifting the economy.

Their competing jobs plans offer one of the clearest philosophical contrasts of the campaign.

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Inslee, the former congressman, takes an activist view, saying state government should focus on chosen industries of the future. He’d create a new state economic agency and offer tax breaks and other aid to favored sectors, including clean energy, aerospace, biotech and maritime companies.

McKenna, the two-term state attorney general, dismisses the notion state government can do much to create private-sector jobs — beyond getting out of the way. He’d pare back burdensome or duplicative regulations, simplify sales-tax collections and possibly offer a tax cut for small businesses.

Naturally, the rivals have unkind words for one another’s ideas. Inslee calls McKenna’s approach a bunch of generic Republican talking points; McKenna says Inslee has offered a government-knows-best scheme of picking winners and losers.

August’s unemployment rate rose slightly from 8.5 percent in July; it was down from 9.9 percent in 2010, according to the state Employment Security Department. Washington’s August rate ranked 15th-worst among the 50 states.

A governor’s ability to reduce the jobless rate is limited. The economy generally rises or falls with national trends.

“A lot of the stuff you can’t control. You can tweak it around the edges,” said John Mitchell, an Oregon-based consultant and former chief economist for U.S. Bank. “There is no silver bullet when you think about states. If there was, everyone would copy it.”

But the state of the economy will have big implications for the next governor, as weak growth would obstruct campaign promises by Inslee and McKenna to find more money for education or other priorities.

The Inslee plan

Inslee has made job creation the central theme of his campaign. The issue is prominent on his website and in campaign ads in which he sits astride a bulldozer — a reference to a job he had in college.

He says he’d harness the talents of Washington state by focusing on key sectors and industries the state is “uniquely poised to lead.”

Inslee’s jobs plan, distributed in glossy folders at campaign events, sketches dozens of ways he’d try to grow seven selected “industry clusters” — clean energy, aerospace, life sciences, agriculture, information technology, military and maritime.

The state has limited resources, Inslee says, so it makes sense to target certain sectors. “It’s not some sort of butter we are going to spread across the state,” he said.

That approach is not radical or new. Inslee acknowledged his “industry cluster” focus borrows in part from the regional economic-development blueprint adopted by the Prosperity Partnership, a coalition of major Puget Sound business, labor and government groups.

Inslee’s ideas include new government offices and advisers who’d work to grow the industries of the future.

He’d create an Economic Competitiveness and Development office — a small agency led by a new Cabinet-level director — by transferring positions and responsibilities out of the state’s existing Department of Commerce.

Inslee would also create an Advanced Sustainable Biofuels Center of Excellence affiliated with Washington State University to push advances in clean fuels, and a Washington Center for Marine Innovation to buttress shipbuilding and other maritime work.

Although he has spent part of his campaign criticizing the hundreds of special tax breaks on the books for various industries, Inslee’s jobs plan would add a few to that list.

He’s proposing three years of tax breaks for clean-energy, biotech and computer startups. He’d also extend existing tax breaks for renewable-energy development and companies investing in manufacturing and research.

And Inslee wants a business-and-occupation (B&O) tax credit for small businesses that hire people, with the credit scaling up depending on the workers’ wages. The credit would be capped at $4,000 per hire and at $8 million for the state.

He says his tax breaks would be narrowly tailored and reviewed for effectiveness.

McKenna mocks Inslee’s jobs plan as a bureaucratic boondoggle.

“In meeting with hundreds of business owners and leaders, not one of them said to me, ‘You know Rob, what we really need to support job creation and make it easier to run our companies is a new state agency,’ ” McKenna said. “This is the top-down, government-centric approach that the public hates and that business owners really hate.”

But Inslee defended his approach, arguing Washington is competing with other states — and even other nations — to nurture the industries of the future.

The McKenna plan

McKenna says his own approach to reducing unemployment relies on the private sector and has been informed by his chats with hundreds of small-business owners across the state. “Government doesn’t grow the economy,” he said.

Washington’s jobless problem is even more dire, McKenna notes, when you factor in people who can’t find full-time work or who have given up looking. By that measure, the state’s unemployment or underemployment rate has been hovering around 17 percent, according to the federal Bureau of Labor Statistics.

McKenna’s jobs plan, which reads much shorter than Inslee’s, contains no new agencies or new advisers in the governor’s office — although McKenna frequently says he’ll bring in people with private-sector experience to run state agencies.

His plan calls for a top-to-bottom review of state regulations he argues are making it harder to run a business.

“Unlike the spending, the regulations never seem to undergo any kind of review. They just pile more and more on,” he said. “In fact if you think about the incentives for government regulators, the incentives work in favor of more government regulation, because that’s job security.”

A state performance audit released this month concluded several state agencies do regularly review and streamline business rules, as required by executive orders from Gov. Chris Gregoire and her predecessors.

However, the report said the agencies were not formally measuring the results of their streamlining to see whether it had the intended effects.

McKenna also is proposing a possible B&O tax break for small businesses. If fully implemented the tax credit would exempt about 118,000 small businesses from the B&O tax at a cost of more than $250 million a year to the state.

However, McKenna has indicated he’ll proceed cautiously with such a plan, since it could interfere with his chief campaign pledge of finding billions of dollars in additional state money for public schools and universities. He said the tax relief could start small and be phased in over time.

McKenna also proposes simplifying the way state sales taxes are collected, arguing a rules change by the state a few years ago added too much complexity for businesses.

And McKenna wants to introduce private competition into the state’s workers’ compensation system, noting Washington remains one of just four states with a government monopoly on industrial insurance. Voters rejected that idea in 2010, defeating a business-sponsored ballot initiative. But McKenna said it’s worth another look.

Inslee derides McKenna’s jobs strategy as a generic Republican platform that doesn’t play to Washington’s strengths.

“You don’t exactly read his plan and say ‘Gee that’s a new idea, that’s a fresh thought.’ I’ll offer a reward for anybody who can find a fresh thought in my opponent’s plan,” Inslee said.

Despite their differences, the rivals have some areas of broad agreement on ways to bolster job growth.

Though they disagree on details, both Inslee and McKenna say they’d work on ways to reduce health-care costs to employers. And both say the state must reshape universities to produce college graduates in science and math fields in demand by high-tech employers.

And neither is proposing a stimulus program or government-hiring spree to counter public-sector job losses.

There are 15,000 fewer public-sector jobs in the state than there were in 2008. Last year, government shed 5,000 jobs, the most of any sector.

Seattle Times business reporter Sanjay Bhatt contributed to this report.

Jim Brunner: 206-515-5628 or On Twitter @Jim_Brunner.

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