economic development – Sheila Kennedy

Indiana–Aspiring To Be Mississippi

I frequently begin these daily rants by promising to “connect the dots.” That’s because Americans have a distressing tendency to argue policy in silos–ignoring the fact that the effects of policy A will often have a significant effect on policies B, C and D.

A friend recently sent me a column by Michael Hicks that connected our state’s disastrous education policies with our efforts at economic development. Hicks is a conservative and an economist, and his observations are based on data, not ideology. As he reports, Indiana’s economy is not keeping up with national trends. (Evidently, keeping taxes too low to provide the infrastructure necessary to an attractive quality of life isn’t the most intelligent approach. But then, that’s my snarky take.)

First, the data.

The Indiana Economic Development Corporation turns 20 years old in early 2025. In 2005, Indiana had 104,854 businesses, 2.96 million jobs and 6.28 million people.

In the most recent year for all these data, 2021, Indiana had 99,280 businesses, 3.23 million jobs and 6.81 million residents.

If the state had grown at the same pace as the rest of the nation, we would have 110,305 businesses, 3.23 million jobs and 7.05 million people. That leaves Indiana with a two-decade growth shortfall of more than 11,000 businesses, 151,000 jobs and 240,000 people.

Hicks says the reality is even worse than these numbers suggest.

Since its formation in 2005, Hoosier factory employment has declined by almost 55,000 jobs, or 10%. Indeed, since Indiana’s LEAP district was announced, the state has shed a further 14,000 factory jobs, while the nation as a whole added 166,000 manufacturing positions.

Over the past two decades, average real wages for manufacturing workers in Indiana dropped by a stunning 14.4%. Nationwide, they rose by just under 1%.

This performance–as Hicks acknowledges– is “policy failure in its purest, most unadulterated form.” But as he also acknowledges, the failures aren’t attributable to poor performance by the Indiana Economic Development Corporation, which he says is one of the better such concerns. The problem is that the IEDC represents a “state with increasingly poor economic fundamentals”.

Hicks predicts a future performance that is even worse, thanks to Indiana’s war on education. There is, to begin with, 15 years of funding cuts to state universities–funding cuts that have left us with 10 years of declining attendance and graduation. Our legislature’s failure to reverse that decline places us behind Mississippi, of all places, where one-third more high school graduates attempt college each year than here in Indiana.

The lack of action on college completion removes from our economic development organizations the single most important aspect of a region’s future economic performance — educated young people.

To illustrate this disaster, we can look to the recent past. Since 1980, 72% of population growth, and almost all job growth, went to the 15% of U.S. counties with the highest educational attainment. There are only six of those in Indiana — four in the Indianapolis suburbs and the host counties of Purdue and Indiana University.

Over the same four decades, the least well-educated half of Indiana counties lost 13,764 people. This will inevitably worsen in the decades to come. Education is now more, rather than less, important to economic growth and prosperity.

Indiana’s education failures aren’t limited to higher education. There’s a reason fewer of our high school graduates to to college.

Indiana spends less per student on K-12 education than we did in 2010. One result is the average college graduate working in one of Indiana’s public schools is paid less than they were in 2004. On top of that, Indiana’s proposed high school curriculum will make it among the weakest in the nation…Either Indiana gets a lot more kids to finish college each year, or it gets used to slow growth, declining relative incomes, fewer businesses, wage declines and economic stagnation.

If Indiana’s goal is to be worse than Mississippi, then we’re doing great. Not only are we spending less on education at all levels, we are siphoning off what we do spend on educational vouchers that have done nothing to improve educational outcomes, but have deprived the public school system of critically-needed resources in order to support religious schools and enrich upper-middle-class families.

Early voting in Indiana begins on October 8th. By November 5th, Hoosiers will have made a choice between Jennifer McCormick, a gubernatorial candidate who understands the importance of education to economic development and overall quality of life, and Mike Braun, a candidate who wants to destroy public education by using our tax dollars to fund a “universal voucher” program.

McCormick has consistently done her homework. Braun clearly has not.

We will either elect someone who can begin to reverse Indiana’s steady decline, or we can continue to vie with Mississippi for the title of America’s most failed state.

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How NOT To Do Economic Development

According to a recent report in the Capital Chronicle, the Indiana Economic Development Corporation wants a massive increase in funding. It justifies that request by insisting that larger expenditures are necessary to keep Indiana competitive in the national job market, “especially as Indiana pivots from manufacturing to the “economy of the future.” Those industries — electric vehicles, semiconductors, agricultural technology — will need incentives to come to the Hoosier State.”

The article describes the nature of the “incentives” that will be offered: purchases of land, tax credits, a “Deal Closing Fund,” and others.

If you are interested in the details, you can find them at the link. My reason for highlighting the article is that it underlines Indiana’s persistent–and exclusive– focus on an economic development approach that is essentially bribery.

There’s a lot wrong with that focus.

First of all, even when successful, it uses tax dollars generated by Hoosiers to reward/bribe enterprises new to the state, rather than trying to grow businesses and employers who are already here. Second, it is an approach that buys in to the “zero sum” game being played by American states that are encouraged to bid against each other to lure Enterprise X, which, if successful, simply moves the site of employment to state A from state B, rather than adding positions to the nation’s job market.

But my biggest beef with the bribery approach is that it misconceives and misunderstands what makes a state attractive both to business and to skilled workers.

In a recent interview, the new CEO of Techpoint spoke of that organization’s commitment to working with partners “to bring more people of color and women into the sector.” Indiana is currently 37th in tech employment, and–as I have previously noted– there are reasons for that.

Economic development– the addition of skilled workers and new companies–depends on a state’s quality of life. That quality may be enhanced by good weather and natural beauty (assets Indiana mostly lacks), but it is a far more capacious concept.

As one economic development firm explains, improving quality of life raises a destination’s desirability, attracts (and retains) population, adds revenue, and boosts recognition and reputation.

As the Brookings Institution has found,

There is compelling new data that these traditional economic development tools may be ineffective compared to investments in quality of life and place. Our research on smaller communities has found that community amenities such as recreation opportunities, cultural activities, and excellent services (e.g., good schools, transportation options) are likely bigger contributors to healthy local economies than traditional “business-friendly” measures. Smaller places with a higher quality of life experience both higher employment and population growth than similarly situated communities, including those that rank high by traditional economic competitiveness measures.

Research has shown that people are willing to pay higher housing prices and even accept lower wages to live in places offering a higher quality of life, and that businesses are willing to pay higher real estate prices and offer higher wages to locate in places with more productive workers.

After estimating quality of life (what makes a place attractive to households) and quality of business environment (what makes a place especially productive and attractive to businesses) in communities across the Midwest, we found quality of life matters more for population growth, employment growth, and lower poverty rates than quality of business environment.

As the article notes, policymakers can’t build a Great Lake, mountain, or other natural feature. But they can focus on enhancing other quality of life aspects and providing solid public services for their current residents.

The Brookings analysis found that one of the strongest factors associated with higher quality of life was spending on public schools, “with public school quality and the availability of early childhood education being two of the most important factors for working parents.”

Bottom line?

The findings reinforce that local leaders and economic developers should prioritize quality of life strategies over tax incentives and lax regulation. The long-standing Midwestern community economic development strategy of low taxes, business incentives, and loose environmental regulations usually doesn’t work, and has often proven disappointing to communities that have given away tax dollars and reduced business standards without seeing substantial returns. Low business taxes often hide a hidden opportunity cost by reducing available funding for local schools and other public amenities.

If our legislative overlords really wanted to attract skilled workers–including female workers and workers of color– they would fund child care and pre-K programs. They would work to create great public schools and excellent transit systems. (They would also leave medical decisions to the professionals who understand the complexities of those decisions, rather than imposing the beliefs of fundamentalist Christians on all Hoosiers.)

Pledging billions for bribery while ignoring quality of life isn’t a viable economic development strategy.

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Average/Median–Or Lying With Statistics

I have previously mentioned–and sometimes quoted–my friend Morton Marcus. Marcus is an economist; he is retired from Indiana University, where for many years he headed up the Kelly School’s business research center. Morton and I have been friends for a long time, and have just co-authored a book on the women’s movement. (More on that when it’s published.)

Morton also writes a weekly column on economic data called “Eye on the Pie,” explaining in relatively simple language what various data points tell us about Indiana. That column runs in a number of the remaining small newspapers around the state. In a recent column, he made a point that I think is so important I feel compelled to share it.

Morton fashioned his column as “A note to Gov. Holcomb,” and began by saying that normally, he doesn’t write to the Governor.

But this week is different. A few days ago, you gave your “State of the State” address to the General Assembly. It was a nice talk and very well presented.
You had some good ideas for our state, but, and this is awkward for me to say, you don’t have a staff that keeps you from making the same mistake time-after-time. You’re not the only Governor who makes this mistake. I’ve known them all from Gov. Whitcomb onwards and they all make the same mistake.

And what was that mistake? (I must admit, it’s an error I have often made too.) Let Morton explain:

Almost always the Indiana Economic Development Corporation (IEDC – bless their hearts) tells us the average wage going to be paid by a firm they have arranged (lured, bribed) to open or expand in Indiana.

Most of the media (bless their hearts) regurgitate the press release because they don’t have the time or energy to remember that the average is the mean of a set of numbers. It can be heavily influenced by extreme (high or low) values.

The median, however, tells a different, more meaningful story (if you’ll excuse a little pun there). The median is the wage above which half of the employees will get paid and below which the other half of the workers will be paid.

Let’s say the top gun gets paid $150,000 per year. The #2 gets $75,000, the other eight get $30,000 each. That’s a total payroll of $465,000 for ten employees or an average (mean) annual wage of $46,500. Yet the median pay is $30,000. That’s $16,500 (35%) below the IEDC-advertised average.

From what I hear, Governor, you’re not the type who intentionally misleads or lies to the people of Indiana. But by using the average (mean), rather than the median figure, you’ve been passing on some real whoppers over the years.

If I might have just a bit more of your attention, let me note the average (mean) annual pay for all occupations in Indiana in 2021 was $50,440 (37th in the nation) or $12,110 (32%) above the median Hoosier pay of $38,330 (39th among the 50 states).

With just two years left in your term of office, you said you were going to work harder than ever for all Hoosiers. Maybe you could get IEDC and your staff to give you the most accurate, realistic numbers. Then the people of Indiana would not continue to be misled by excess enthusiasm and just plain ignorance.

When I read this column, it immediately reminded me of a book I read several years ago, debunking several of the claims that were then being made about the “failures” of the nation’s public schools. The authors noted that much of the data being uncritically reported about “averages” was similar to the rather misleading result one would get when averaging a mouse with an elephant.

If you average my income with that of Bill Gates, you’ll come up with a pretty impressive average…

Actually, Morton’s column does inadvertently highlight a failing of the education system: too many Americans (including, I am sorry to say, the one writing this blog) are innumerate–lacking a basic knowledge of mathematics and arithmetic. That innumeracy encourages the use of statistics to mislead. As the saying goes: statistics don’t lie, but liars (and innumerate folks) do use–or misuse– statistics.

The Governor’s error perpetuates the erroneous belief that Indiana is succeeding with an economic development approach that relies almost entirely on keeping the state’s taxes low–and ignores the fact that those low tax rates prevent the state from spending tax dollars to achieve a quality of life that would be far more likely to attract the businesses and skilled workers we need.

What Is Government’s Role?

Americans love to defend liberty–and oppose government actions that they believe intrude on that liberty. (Granted, all too often they are perfectly willing to have government limit other people’s liberties, especially when those other people don’t espouse the same religious beliefs they hold, but that’s a subject for another day…)

We’re just emerging from one of those periodic, heated debates, triggered by “patriots” offended by government’s effort to prevent the spread of a deadly disease. Again, I’m not spending many pixels on the anti-mask, anti-vaccination folks, because (with very few exceptions) they are so clearly wrong–not just on the science, but on the role of government–not to mention remiss in discharging their most basic obligations to other humans. People who don’t believe public health is a public good that governments are bound to protect are beyond the reach of logic and reason.

In many other areas, we get into various shades of gray. There are plenty of issues that raise legitimate questions about the proper role of the state. I’ll admit to qualms, for example, about things like seat belt laws and similar”nanny state” measures, meant to protect individuals from their own heedless or self-destructive behaviors.

I was recently prompted to think about the proper and improper use of government authority when I read a recent “Eye on the Pie” column written by my friend Morton Marcus. Marcus, for those of you unfamiliar with him, is an economist and former director of the Indiana Business Research Center at Indiana University. In this particular column, he defended governmental “intrusion” on the most hallowed of rights: property rights. He argued (I think persuasively) that your house may be private property, but it also has characteristics of a public good.

My house can be seen by anyone driving down my street. Unless I go to great trouble, I can not stop you from seeing my house. I can’t charge you for looking at my house.

But what you see of my house influences your opinion of my block and the price you’d pay to live near me.

Broken windows, leaky roofs, sagging gutters, piles of trash, and abandoned furniture are not inviting signs of habitation. Such a house may be a fire hazard and a danger to its neighbors.

At the same time, if my house has rats or unhealthy conditions, it may pose a health hazard not only to my family, but to yours as well. My children play with your children. I meet you in the grocery. We family may be carriers of disease, my house a public health menace.

Governments have limits on private behavior when public health and safety are at risk. Yet, we’ve seen great resistance to action that infringes on presumed private rights.

We don’t enforce building codes. We allow structural deterioration and abandonment. We don’t insist houses have adequate insulation from the cold of winter and the heat of summer to protect residents from chronic illness..

Our collective neglect is excused because we believe we’re protecting the poor and/or elderly who cannot afford repairs or adequate weatherization.

Yet our housing stock is one of the most vital aspects for the economic development we seek. Our state provides funding to restore abandoned, old movie theaters, but does little to resurrect declining houses.

Our reluctance to infringe on the “rights” of a property owner conflicts with the community’s need to preserve its critical assets.

Morton argues that there are many negative consequences of not treating housing stock as a public good: decay of our central cities, abandonment of our smaller towns, encouragement of urban sprawl and environmental degradation. He blames the “infatuation with the myth of unlimited private property rights.”

Of course, as any lawyer will confirm, there are few if any rights that are “unlimited,” and property rights are no exception. Laws against nuisance, and minimum upkeep regulations–neither very well enforced, unfortunately–are meant to protect the considerable investments people make in their homes.

Morton’s column raises some thorny issues: does government have an obligation to ensure that people’s homes are humanly habitable? How far does that obligation extend before it becomes an unconstitutional invasion of property rights? What about the rights of homeowners whose properties are adjacent to homes that have been allowed to deteriorate?

If we are talking about property values, it is interesting to note that, in historic areas that are subject to more stringent government regulation, values are not only stable, but tend to be higher.

I’m not entirely sure where I come down on what are often very technical/legal questions of property regulation, but I am sure that these are precisely the sorts of questions our elected officials ought to be debating–rather than worrying about my uterus, Jewish space lasers, or being “replaced.”

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Education And Economic Development

As Indiana’s legislature continues its multi-year assault on public education, evidence confirming the importance of a state’s educational system continues to mount. (Not that evidence matters to the culture warriors who dominate Indiana’s Statehouse. )

Intel has announced that it plans to build its twenty billion dollar factory in Ohio–an announcement that business publications have called “arguably the most consequential manufacturing announcement in recent decades.”

Why Ohio? As the linked article notes, Indiana can easily compete with Ohio when it comes to the Hoosier State’s economic development tools of choice: tax breaks, tax rates and regulatory environment. However,

To attract the kind of high-paying, advanced manufacturing jobs, cities and states need an abundant share of college graduates, a steady flow of new graduates and communities in which these workers will desire to live.

Indiana can offer tax breaks, tax rates and a regulatory environment similar to Ohio’s, but we come up short on such all-important measures as quality of life and the supply of an educated workforce. Ohio offered plenty of fiscal incentives to capture the projected 3,000 jobs–jobs that swill pay an average of $125,000 in salary and benefits– but it is highly likely that Indiana could have matched those financial incentives.

So what were the factors that gave Ohio the edge?

This factory is a 25-minute drive from the College of Engineering at Ohio State University and close to the fastest-growing parts of the Columbus metropolitan area. The entire metro area has absorbed some 130% of the state’s population growth since 2000 .

The salary levels also suggest that the workforce at this plant will be primarily comprised of college graduates. Ohio workers in the semiconductor industry earned $65,490 per year in the last 12 months before the COVID downturn. To be profitable, this factory will be much more than the clean-room production facilities of a traditional semiconductor factory. I suspect this site will involve considerable product development and testing.

This evidence points to the need for a large number of college graduates as a driving factor in Intel’s decision. Close to a dozen top engineering colleges are within a five-hour drive. These include Purdue University, the University of Michigan, Michigan State University, Carnegie Mellon University, the University of Kentucky and of course Ohio State.

The only other Midwest location that could boast the same geographic concentration would be Indianapolis. The fact that Indiana was not chosen in this case offers a harsh lesson for states that rely on incentives rather than an educated workforce as an economic development strategy. It is the same lesson the Amazon HQ deal provided state policymakers around the nation.

As important as quality of life was, the presence of an educated population was even more important.

Statewide, Ohio just does much better than Indiana on educational attainment.

In 2020, 29.6% percent of adults in Ohio had a college degree; in Indiana, it was 26.9%. That may seem like a modest difference, but it places Indiana in the bottom 10 states in both college graduates and those holding an advanced degree. Ohio ranks in the middle third on both measures.

Most troubling, though, is that Indiana’s share of adults with a college degree has been in decline since 2018, a factor that would immediately remove it from the long list of applicants for an advanced semiconductor plant.

The author analyzed the environments/inducements of Indiana and Ohio, and concluded that the “only meaningful difference” came down to the availability of well-educated workers. That one difference made Ohio the beneficiary of the “most consequential industrial expansion in the country in this century.”

It isn’t that more college graduates leave Indiana than Ohio. Neither state has significant levels of outmigration. The problem is that Indiana doesn’t attract many college graduates from outside the state. We also have low numbers of high school graduates who enroll directly in college. (Ohio has 3,600 more students per year heading to college than Indiana.)

We all know that old political saying: follow the money. In this case, we need to follow the money that isn’t being spent–and where it isn’t being spent– because state spending reflects what that state’s legislators value. Not only does Indiana spend less on education, our legislature siphons off millions of the education dollars that would otherwise go to our public schools, and sends them via vouchers to predominately religious private schools, a significant number of which are of dubious educational quality.

Though Ohio hardly spends a lavish amount on schools, it has allocated $3 billion more to education than Indiana over the past decade. Ohio continues to spend a larger share of its GDP on schooling of all types. Ohio spends almost 20% more per child on education, or roughly $1,500 per kid aged 0 through 24 than does Indiana. That extra spending spending just paid off.

The World’s Worst Legislature never learns…..

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