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Economic development: Why Minnesota needs a course change

As the economy sours, prosperity-era practices in economic development will fail us. Competing for mobile enterprises, cutting business taxes, retraining for high-wage jobs, and investing in science-based innovation will not reverse business retrenchment and deep job cuts over the coming months. The state must redeploy its resources to retain as many existing jobs and markets as possible, encourage entrepreneurship, and help companies and workers preserve expertise for a recovery that appears to be many months off.

This won’t be easy. The Minnesota economy has grown more slowly than the nation’s since 2001, largely because the high risk-taking and cheating that drove the financial bubble was less prominent here. That’s good news. But financial stasis and asset evaporation have cut deeply into consumer and business spending everywhere, which will mean continuing layoffs, negative profits and escalating demands on the public sector pitted against plummeting state and local revenues.

Best practices for hard times
What are realistic goals for this period? From the de-industrialization of the 1980s and the defense industry implosion of the 1990s, there are important lessons in best practices for times like these. Here are several steps Minnesota should take:

• First, revitalize our business extension services, bringing them back into the Department of Employment and Economic Development. Few small and medium-sized businesses know how to cope with plummeting sales or have techniques for preserving capabilities while accepting the inevitable cuts. Some Minnesota companies are doing brave new things to keep their teams intact, such as moving to a four-day workweek  for everyone from the CEO to blue-collar workers, or initiating progressive pay cuts, where managers take higher percent pay cuts than professionals, with no cuts for blue-collar workers.     

• Second, ramp up entrepreneurship programs. Modest amounts of coaching and shared workspace and business services, as in the many incubators that have sprung up across the country, go a long way toward helping a laid-off professional or blue-collar worker start a business that addresses an unmet need, perhaps even one borne of the downturn. Reflecting on the Great Depression, Joseph Schumpeter observed that fundamentally new innovations are born in times of deep crisis, when businesses cannot simply tweak their product line or market more creatively to survive.

• Third, face the burgeoning layoffs by beefing up services for displaced workers. In the 1990s, some defense companies and labor unions set up workers’ centers, often on former employers’ premises. Here workers formed peer groups that met weekly or more often, helping each other understand their marketable skills and entrepreneurship potential and encouraging each other through grueling, often humiliating job searches. Instead of standing in line at an employment center surrounded by other unhappy strangers, these workers were much better able to cope with the psychological and material challenges they faced.

• Fourth, move beyond the belief that only companies whose products or services leave the region are worth economic development investment. Local consumption activities — such as nursing homes, health-care clinics and cultural centers — offer communities, especially those in rural areas or inner cities, opportunities to capture higher shares of their residents’ incomes and create sustainable jobs locally. Twenty dollars spent at a live theater performance will cycle through the local economy at higher rates than the same amount spent at Mall of America or a big-box retailer on the edge of town.

Take a look at our tax incentives
Minnesota also could use this opportunity to put in place better economic-development practices. For instance, adopting a Unified Development Budget would place tax incentives (or tax expenditures, as economists more accurately call them) side by side with annual spending on economic development. This would allow legislators and citizens to see the deep and ongoing opportunity costs of tax incentives that are incurred for many years into the future, restricting resources available for new challenges. Tax-incentives practices should be overhauled and targeted more precisely to job creation, requiring that jobs be created before the tax break is activated, or restricting them to the start-up period only and insisting on transparency and ongoing evaluation of their effectiveness.

In these efforts, Minnesota could be a leader rather than a follower. The governor and the Legislature should insist that DEED and local economic-development agencies abandon business-as-usual frameworks and think and act out of the box.

And let’s not expect the public sector to do it all. We’re all in this together. Those business leaders who have survived prior retrenchments creatively could mentor those who have never faced times like these. Professional associations, unions, nonprofit organizations, and colleges and universities — even high schools and churches — could re-orient their space and staff as conveners for problem-solving and new experiments in how to survive on less and re-imagine our joint economic future.

Ann Markusen is a professor and director of the Project on Regional and Industrial Economics at the Humphrey Institute of Public Affairs, University of Minnesota, and the author of “Reining in the Competition for Capital.”

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Comments (7)

  1. Submitted by Brian Pittelko on 03/10/2009 - 12:29 pm.

    Regarding, #2 I suggest that while entrepreneurship programs should be increased, these programs should target export industries. These businesses would bring in new money from outside the local economy rather than diverting it from existing companies.

  2. Submitted by William Hansen on 03/10/2009 - 07:52 pm.

    Creating our own entrepreneurs is the most effective economic development. It is hard work and takes time, but it provides real job growth. Incentives not only rob future resources, as you mention, but tend to just move jobs around rather than create new ones. One of the most innovative and effective entrepreneur training systems in the nation is right here in Minnesota. Search for the non-profit Greenstone Group working in northeastern Minnesota.

  3. Submitted by david granneman on 03/11/2009 - 03:32 pm.

    HELLO ALL
    the best way to promote jobs and prosperity in minnesota is to lower the costs of doing business
    the two ways of doing this is to
    CUT TAXES
    LOWER THE COST OF ENERGY.

    minnesota is one of the highest taxed states in the nation. the legislature seems to be very anti business. when companies are looking for places to create jobs, they do not pick high tax states.

    one of the highest costs for business is energy. minnesota has created policies that will cause energy costs to skyrocket due the the global warming HOAX. WHERE ENERGY IS CHEAP AND PLENTIFUL THERE IS JOBS AND PROPERITY. high energy costs and punishing taxes will cause business to leave minnesota and go to places with better business climate.

  4. Submitted by John Olson on 03/14/2009 - 06:08 am.

    Thanks for yelling #3. One hour you guys want the market to do everything. The next hour you want the market manipulated to give YOU (and a specially-selected group of people) artificially low energy prices. Can’t have it both ways and/or when its convenient.

    Venezuela has cheap energy. Real cheap. Now the bad news: You get to deal with one Mr. H. Chavez. Enjoy.

  5. Submitted by david granneman on 03/19/2009 - 09:27 pm.

    hello mr olsen
    america has it’s own vast resources of oil and natural gas and coal. the balken oil fields of north dakota has been detemined to have more oil reserves than saudia arabia. we have enough coal in colorado and utah to last for over hundreds years. we have vast oil reserves in alaska and the gulf of mexico. the only thing we lack is politicians who would rather hand millions of dallors to an arab rather than an american. these politicians are UNAMERICAN and do not have our countries best interest in mind.
    these politician have been paid off by middle east oil money to PREVENT THE DEVELOPEMENT OF OUR OWN RESOURCES. what other reason would they have from preventing americans from the benefiting from our energy developement.
    mr. olsen i am going to yell at you again but i doubt it will help.
    GLOBAL WARMING IS A HOAX PERPETUATED BY PEOPLE OUT TO DESTROY YOUR PROSPERITY AND WAY OF LIFE.

    ten years from now when you have lost your job, your computer is dead, you have no food to eat and your home is dark and cold – you can sit there and smuggly say – you have saved the planet.

  6. Submitted by John Olson on 03/23/2009 - 08:41 pm.

    All I can say is “wow.”

  7. Submitted by Dwight baker on 04/03/2009 - 11:44 am.

    FROM WAY DOWN HERE ON THE BORDER HOW ARE YALLLLLL?
    These boys that run this site read my mind—– bout time somebody posted jobs

    WHAT ARE THE LACKS TODAY
    THAT SWARMS IN LIKE VULTURES TO DEVOUR?

    Amid all the confusion of what is good and what is bad for our economy the missing link is the need for real not perceived technology innovation?

    And to put it blunt seldom has anything of any real consequence in technology of building cars, trucks, drilling rigs, big tugs or the likes ever come from the top down. Look at the patents filed and see where they come from. The workforce those hands on guys and girls that has made America what if was and could be again have been shunned when the big push began to put in CEO that had not a clue of the business of making cars, trucks or other mechanical things but they were buds with other CEO’s and knew how to work both ends at the same time for their personal wealth.

    Example what could Dick Cheney done to help Halliburton be a better company when he was at the top of the heap there? Dick Cheney could not find oil at a filling station much less out and about in the oil patch. He was put in that position to do what he did structure crooked deals with the Russians to get Chevron the grand prize in the Giant oil find the Tengiz in the Caspian Sea.

    So for us We The People to ever gain any long term respect for those that climb to the peak of corporate summits, we better be sure those guys have more than an MBA. Heck any one can cut corners and crunch the little guy down to make profit. But who can sustain the growth of a giant enterprise like GM, that stay clueless of how to build cars, trucks, have hands on insight how to do a better job, build better products that last longer and so on.

    Case in point when Toyota made their debut in America they did so by introducing a four cylinder engine that was an exact copy of the straight in line six 300 cu in, GM had been putting in trucks and cars for years. Toyota just dropped two of the cylinders and sized a few things down stayed with all the same designs put that engine in a smaller car and they were in business. And China is doing the same today they are clueless how to create but their thievery has been perfected. China has broken the codes to the Pentagon and stolen stuff from us there.

    So from the archives of history people should learn today that building walls is not a bad idea at all. But the bigger problem today is that the non-trickle down effect has not got to some but it will. For in the end the only ones to have are the BIG BARONS OF OLD. And all else of us are just slaves to their systems of UN justice, and the lacks of equity in all things.

    DWIGHT BAKER Chairman of Grass Roots Actions We The Peoples Advocacy WTPA more info dbaker007@stx.rr.com

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