Returning to economic growth requires patience


A full eight weeks have passed since the unveiling of New Year’s resolutions.

Like most of us, mine lies abandoned, which means I will not receive that free YMCA attendance shirt again this year. This brevity of resolve is an apt metaphor for the dilemma facing many Hoosier communities, and places across the Midwest.

Over the course of a year, I am asked to deliver about 50 talks in various places around the state. Most of these presentations are about the common worries of slow-growing places. So, to groups of elected leaders, major employers, and civic-minded folks I explain the findings from decades of research on the topic.

Readers of this column will find my prescriptions familiar. People hoping for a growing local economy must first make communities in which people would wish to live. I explain that this means focusing on the quality of local schools, remediating blight, ensuring there are parks and trails, and otherwise removing barriers to new residents.

With the exception of school quality, I try not to be too specific about needs. Every community is different and has different priorities. Perhaps the best way to set these priorities is by asking residents in a formal, diligent and inclusive way. In finding remedies to problems, the most important voices are apt to be those who are least often consulted. This fundamental lesson is too often ignored from neighborhood association boards to city hall.

My talks are generally well-received, the factors that cause population growth are familiar to anyone who has looked for a home. But there is also pushback and consternation about my ideas. Many people in the Midwest have lived in one place all their lives and are ignorant of the factors that influence mobile households. Others are simply wedded to yesterday’s policies.

I find both positions puzzling. The data is overwhelming supportive of my position. For example, over the past 50 years Indiana has spent more than a billion dollars a year for on economic development, yet we have fewer ‘attractable’ jobs now than we did 50 years ago. At the same time, our incomes have steadily dropped relative to the nation as a whole. Maybe the saddest fact is that in a state that beat Great Britain to universal literacy, we now have educational attainment closer to that of Mississippi than the national average.

The traditional economic development model is now a half-century old in Indiana. It has failed the state. As a fiscal conservative, I object to the continued waste of a billion dollars a year in economic development spending. But, the billion dollars is only the tip of the iceberg. The real losses come in the under-investment in things that mattered to families over the past half century.

It isn’t just that we have spent money on the wrong things, like piling on business incentives and constructing vast empty business parks. These were mostly wasted, but the real damage lies in ignoring the things that could’ve delivered mattered. For a half century we’ve been told that a business-friendly environment with few regulations and low taxes were critical to our economic development model. The failure of that policy is readily evident to anyone who looks.

So far in this century, the city of San Francisco has had more than twice the economic growth of Indiana. The average citizen of San Francisco is twice as productive as the average Hoosier. While I wouldn’t advise mimicking the City by the Bay, clearly higher taxes and spending doesn’t deter economic growth and productivity.

Interestingly, both Indiana and San Francisco have nearly identical population growth this century. However, more than 85% of our growth has occurred in the Indianapolis metropolitan area alone. If it weren’t for the success of the relatively high tax regions of our state, we’d have lost another half-million residents over the past 20 years.

The simple fact is that households value public services more than in years past, and this is especially true among more mobile, educated and productive households.

These things cost money. Again, I don’t say this because they sound good, I say it because literally hundreds of studies, across all the developed world, report these results.

In speaking to communities, I tell the same story. If you wish to grow, be more like the fast-growing counties around Indianapolis or in San Francisco. What I also say is that getting there takes time. The greater Indianapolis area has been working on quality of place improvements for at least 50 years. San Francisco has been at it even longer. For many communities, this is more like a resolution for a new century, not just a new year. Patience and diligent effort matters. There are no quick solutions, only long ones.

Michael Hicks is the George and Frances Ball Distinguished Professor of Economics and the director of the Center for Business and Economic Research at Ball State University. His column appears in Indiana newspapers. Send comments to [email protected]

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