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One year later: Identified needs still go unmet as state economy worsens

Minnesota 2020 announced its arrival last year by issuing its first research report, “Chasing Smokestacks, Stranding Small Business,” which identified shortcomings and chronic problems facing rural Minnesota and small businesses with economic development.

A year later, those identified needs remain largely unmet. State budget realities for a state in recession outweighed political will to change. At the same time, state and local officials, nonprofit organizations and foundations have scrambled to fill voids in public policy in ways that make economic development possible and, in some cases, a reality.

For instance, the city of Luverne in southwest Minnesota has picked up a couple of small businesses, or seen local small businesses expand, in the past year, said Luverne Mayor Andy Steensma. Even more growth is anticipated in the coming year as Luverne and partners make better use of existing resources, he said.

This comes as a new hospital management company built a new facility in Luverne. The city took over half of the old hospital for use as a new City Hall. And now, the other half is being converted to education as Minnesota West Community and Technical College, the multicampus state college for the region, expands medical health education programs for about 200 students in the former hospital.

Investment in infrastructure was the stimulus
That means more people coming to this city of about 4,500 population. More people mean more economic activity, and that opens the way for more economic opportunity, said Steensma. In this case, Luverne’s decision to invest in its own infrastructure was the stimulus in making better use of local resources and boosting economic activity.

“It would cost about $400,000 to $450,000 to tear the old hospital down. We put about $200,000 into making the hospital a good City Hall, and now we’re getting more higher education in Luverne as well,” he said.

This occurs even as the Minnesota economy continues to show steady declines except for agriculture and mining. In the Chasing Smokestack report, Steensma had warned against putting all eggs in state economic-development baskets like the JOBZ tax subsidy program that is used to help large factories relocate to new or underdeveloped communities.

“I would rather have 30 businesses employing 10 people (each) than have a factory come to town and employ 300 workers,” he said in what became a widely quoted observation in that initial report. “We would have more diversification. And we would have most of the profits from those businesses stay right here in town.”

Four major initiatives recommended

That original report made recommendations for four major policy initiatives. They include entrepreneur skill building and research, business development resource coordination, development and marketing, and capital formation and micro lending.

The Pawlenty administration wisely proposed sweeping changes to state economic development programs, called its Strategic Entrepreneurial Economic Development (SEED) plan, which would accomplish most of the Minnesota 2020 recommendations. Alas, most anything that required new state funding failed to make the cut as the Minnesota Legislature wrestled with deficits in state revenues.

But there are promising developments. The Minnesota Department of Employment and Economic Development (DEED) is taking steps to improve business development resource coordination and its development and marketing operations through administrative actions. And higher education groups, notably the Minnesota State Colleges and Universities (MnSCU) campuses like MinnWest cited above, and the University of Minnesota’s Minnesota Extension Service and research institutions have several promising initiatives that will better serve rural Minnesota communities and entrepreneurs.

Minnesota 2020 has saluted good works by the state’s extraordinary number of foundations and nonprofits that rise to the challenge of shifting economics and demographics, and often step in and fill the void left by inadequate state resources. That was noted, for instance, when a Macalester College Chuck Green Civic Engagement Fellow at Minnesota 2020, Ben Pierson, took a look in August at the microlending programs operated by the Southwest Minnesota Initiative Foundation at Hutchinson — providers of $1.25 million in micro enterprise loans to 113 start-up and small businesses since 2003. 

The reception given the original paper by Minnesota media throughout the state has encouraged Minnesota 2020 and helped identify areas of concern for more study. It should be noted that Minnesota 2020 was pleased when Star Tribune editorial writer Lori Sturdevant won a Page One Award from the Society of Professional Journalists for her editorial on economic-development policies that keyed to the Chasing Smokestacks report.

Minnesota consumers can help the cause
Supporting our original research and recommendations, Minnesota 2020 has since published papers supporting the need for change in how Minnesota’s approaches economic development, and ways in which Minnesota consumers can help the cause.

A five-part series that began in September showed that continued existence of 500 small cities in Minnesota is threatened (“Minnesota Ghost Towns Haunt 500 Endangered Small Cities”) if entrepreneurial developments do not bring new economic reasons to exist. This series keyed off four, interrelated drivers of induced innovation — technology, resources, institutions and culture — as identified by University of Minnesota applied economist Vernon Ruttan and his Japanese colleague, Yujiro Hayami.

That series was helpful in drawing attention to the needs of small cities that are easily overlooked, said Dave Engstrom, executive director of the Minnesota Association of Small Cities. “Everyone shouldn’t have to live in the Twin Cities metro area,” he said. “Where some of our smaller cities are gaining population, it is usually from people returning home for low-cost housing to retire. We need jobs and economic development to sustain these communities and provide the services the retirees need.”  

Rome, it is often said, wasn’t built in a day. Minnesota won’t be revived and rebuilt in a year. In keeping with Minnesota 2020’s nonpartisan, progressive approach to exploring and promoting ground-up, entrepreneurial-led economic development, we will continue to explore ways to build a strong economy and future opportunities in the state.

Lee Egerstrom is a fellow at Minnesota 2020, a think tank based in St. Paul.

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