The year 1971 was important for economic development in Indiana. For in that year, the actual number of jobs created in firms attracted directly by government policies declined. In 1971, the U.S. economy chugged along well, and overall job creation in Indiana was strong. However, we lost jobs among those businesses who produce goods and services within Indiana but sell to consumers outside their local area. These are the types of jobs the state tries to lure with tax incentives, specialized vocational training programs and a good tax and regulatory climate.
For almost a half century, Indiana has been bleeding these ‘footloose’ jobs, while jobs that depend on the size and spending power of local families have exploded. Today, nearly 50 years later, we have about a half million fewer of the ‘footloose’ jobs and well over 1.6 million more of the ‘non-footloose’ jobs that depend on local sales.
The notion that our economy will prosper if only we can attract new businesses to Indiana has failed us for a half century. That idea has failed us through both Democrat and Republican administrations, it has failed us in cities and counties around the state, it has failed us in rural areas, small towns and large cities. All the while these policies failed us, state and local governments spent well over a billion dollars a year in attracting these firms.
To many folks, the idea that ‘attracting jobs’ has failed is deeply subversive and almost anti-American. After all, we are a nation of commerce, and free markets and free people are the only path to lasting prosperity. However, spending taxpayer dollars to attract a particular type of business to your community is antithetical to free markets. It is not an idea that should animate either political party. That it plainly does not work should appeal to the pragmatists of all political stripes.
The billion dollars lost each year to a failed venture should disappoint most Hoosiers, though those who benefit from this largesse are certain to sing its praises. Still, I don’t think the mal-spending of a billion dollars each year is the biggest failing of our ‘business attraction’ policies. The real catastrophe of this type of thinking is that it leads us to listen to a very narrow group of voices. They give us bad advice when it comes to taxes, spending and other public policies like education priorities.
Today, the voices that matter to spending, education and workforce are those tiny few who represent the footloose or attractable industries. It is these folks who push vocation training down to middle school students and complain when the right number of ‘vocational certificates’ aren’t produced in high schools. It is these folks who push us to shift money from K-12 and college to post-secondary remediation and vocational education.
Again, it is unpopular for many to hear, but the nation just isn’t producing any new jobs for men and women who have not been to college. That trend is a half century old, and shows absolutely no sign of stopping. In the most recent year for which we have data, the United States has created more than 2.2 million new jobs for adults with four-year college degrees. Over the same time our nation lost 157,000 jobs for those without a college degree.
This increasing demand for college graduates is accompanied by wage increases. After adjusting for inflation, hourly wages for college graduates are well above the pre-recession level and rising rapidly. Wages for everyone else are still below the 1980 level. It is the demand, not the supply, of college-educated workers that is causing wage gains.
These facts ought to put to rest instantly the bizarre and fact-starved claim that there are too many kids heading to college, and too few entering other occupations. Yet, that is precisely the view that informs Indiana’s approach to education. So, we cut funding to colleges, we flat-line K-12 spending and shift money into workforce development. All of these policies are attributable to either ignoring the plainly available data or listening to the voices of the few who want a steady stream of low-cost workers for their businesses.
It is far past time for the General Assembly and elected leaders throughout the state to think harder about what constitutes real economic development. If the path to economic prosperity was a low tax and regulatory climate combined with an abundance of vocational jobs, then San Francisco, Palo Alto, Seattle, Boston, and Austin would all be ghost towns, while every inch of Indiana would be thriving.
If Indiana is to flourish, we must get back to the basics that made the Midwest the envy of world growth in the early part of the 20th century. More than 100 years ago, we invested more in education, and it paid off. Our state likely had higher literacy rates in 1900 than did Great Britain. We are going to have to ensure more, not fewer, Hoosier children go to college and complete their education. Importantly, these are just two parts of making the state a place people wish to make a life in. We have to understand better what will keep families in Indiana, which mostly means listening to different voices.
There’s lots of talk about talent retention and attraction, but budgets, not speeches, outline priorities. It is time to shift more resources towards spending that attracts people and worry far less about attracting businesses. Fifty years of those policies have resulted in fewer ‘footloose jobs’ than Indiana had in the Nixon Administration. I know it is a radical idea, but it is surely time for a change.
ABOUT THE AUTHOR
Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. Hicks earned doctoral and master’s degrees in economics from the University of Tennessee and a bachelor’s degree in economics from Virginia Military Institute. He has authored two books and more than 60 scholarly works focusing on state and local public policy, including tax and expenditure policy and the impact of Wal-Mart on local economies.