Friday, November 09, 2007

Innovative Minnesota as Destination Minnesota 

I read something Charlie Quimby wrote, in reaction to the StarTribune's editorial on economic stagnation in Minnesota. (I am going to say something that seems to bother my more conservative political friends -- there is little doubt the data supports stagnation. See our last QBR for more. If you disagree with the premise, there's another post, one I may write for Monday.)

The STrib posits three possible reasons and dismisses two of them:
  1. Housing. The STrib cites Steve Hine as noting the decline precedes the housing slump, without giving us a date. Locally, we called a slump in housing by late 2005 after a rather sharp rise in housing starts in mid 2004. You can look at the data, and in my view the data supports some contribution from housing. But is there a longer-run issue? I think so, leading to...
  2. Demographics. The STrib wonders whether the job growth slowdown precedes or comes after the slowdown in growth in population in Minnesota. Hold that thought, but let's note at least that much of the influx of workers from elsewhere in the Midwest came much earlier. Take a look at this chartbook from the State Demographer's office for population growth in outstate and the Met Council forecasts for the Cities, for example. When you have lower fertility rates, and a lack of people to move here from the Dakotas, you haven't much of an opportunity.
  3. Secular decline. Perhaps, the STrib wonders, it's just our turn to grow slower than the rest of the economy. There's some truth to that. The state economy has a larger share of employment in manufacturing than the 10% in the US economy overall (and St. Cloud has about 18% employment in manufacturing, much more than even the state). The good news of that is the weak dollar, if anything, is probably good for MN. But in the long run the cost advantages to emerging market economies over Minnesota will keep pressure on those firms. That's a recipe for a secular decline in the state economy as workers move from those firms to other industries.
What can save that? Charlie focuses, I think correctly, on innovation -- and wonders whether more government spending can help promote innovation via, for example, R&D from public research universities like the U. I noted in his comments a new study from the Kauffman Foundation that MN is third in international patents.

Charlie's concern is the messaging from a more conservative, laissez faire, laissez passer world.
Minnesota has begun to starve its talent and lose some of its optimism. The no-new-taxes attitude doesn't just affect government services and hamstring education. It sets a tone in the culture that is anti-knowledge, anti-creativity and anti-risk.

It says, focus on the basics, look to the past, and take care of yourself first. Those aren't necessarily bad things, unless they make up an entire world view that determines how a society will deal with a very dynamic present and uncertain future.

Yet as Tyler Cowen argues, that misses that for some, that ability to do your own thing leads to great work:
American labor markets are flexible enough to create a large number of jobs at the lower end of the wage scale. Teenagers are more likely to acquire work experience, and they are more likely to earn a small amount of capital for financing a start-up enterprise.

It is a common American dream to want to start one�s own business, and this cultural influence spreads to the young. It sometimes replaces school and family as a driving force. Ben, in an e-mail message, cited the openness of American culture. �If starting a business wasn�t �cool,� � he wrote, �I doubt very many teens would partake.�

...It is well known that American companies have been the most successful at turning information technology into productivity advantages. In part, this is because of American success in mobilizing young talent.
A lower tax rate system creates that kind of innovation, the kind of innovation that might or might not lead to patents, but can lead to learning the value of hard work and creativity by rewarding it and making it cool. Can Minnesota gain back its edge by being a cool place to be an entrepreneur? And if so, how? Maybe by letting immigrants become taxi drivers or hair stylists?

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