Minnesota’s New Year’s Resolution

This time of year, many Minnesotans are making New Year’s resolutions, pledging to do better in 2017 by going to the gym more often, spending more time with their kids, and so on. Maybe the State of Minnesota should make New Year’s resolutions, too. If so, here’s a suggestion: Minnesota should resolve that next year, it will take steps to make its economy more competitive.

economyMost Minnesotans think our economy is doing well, but the reality is not so rosy. Between 2000 and 2015, Minnesota ranked only 30th among the states in income growth, 34th in increase in disposable income, and 28th in job growth.

The Twin Cities, meanwhile, ranked just 9th among the nation’s 15 largest metropolitan areas in GDP growth.

No wonder, then, that Minnesota’s own agencies project the state to be below average in both income and job growth in the years to come.

If we drill down beneath these statistics, the picture looks worse. New business formation in Minnesota is below the national average and declining. Job quality is getting worse, too: there are fewer Minnesotans working in high-tech jobs today than there were in 2000, according to the Bureau of Labor Statistics. And Minnesota’s post-recession job growth has taken place almost entirely in the economic sectors that contribute the least to GDP.

Most alarming of all, perhaps, is that the average private sector worker in Minnesota, in both the goods production and service sectors, is less productive than the U.S. average. Below average productivity leads inexorably to below average wages.

It is no surprise, then, that Minnesota is no longer a magnet for residents of other states. As recently as the 1990s, Minnesota had a net population gain from domestic migration each year. But that flow has reversed. Now, every year Minnesota loses more residents to other states than it gains. In 2014, Minnesota suffered a net outflow of $948 million in household income due to domestic migration.

People move for various personal and professional reasons, but undeniably, many who move from one state to another are seeking economic opportunity. It is no wonder, given the data cited above, that more people leave Minnesota for better opportunities elsewhere, than come to Minnesota to improve their lot.

Some Minnesotans may ask why the state needs to be more competitive. Why can’t we just stay the way we are? Well, we could. But a quote attributed to Trotsky is pertinent: “You may not be interested in war, but war is interested in you.” In just the same way, Minnesotans may not be interested in competition. But other states are competing aggressively with us, whether we like it or not. If we don’t compete, we lose.

How can Minnesota do better? Like the overweight person who resolves to work out every day, Minnesota can begin by shedding layers of bureaucracy, regulation and high taxes. A leaner, lower-tax regime will encourage business investment. It will cause Minnesotans to stay here, and residents of other states to move here. How do we know this? Because nearly all of Minnesota’s net loss of residents is to lower-tax states.

Minnesota also can make better use of its resources. Few states can match Minnesota’s mineral resources, but obstacles to mining are so onerous that the industry is being strangled. The average mining job contributes six times as much to GDP as the average job in education or health care, virtually the only sectors where Minnesota has added jobs post-recession.

And finally, Minnesota can do a better job of training its young people for the occupations that fuel our economy. The most successful sector of Minnesota’s economy is manufacturing. Why? Largely because for capital-intensive manufacturers, Minnesota is one of the lowest-tax states in the U.S. What is the biggest problem Minnesota’s manufacturers face? The lack of a skilled work force. Minnesota spends an enormous amount of money on education, so even a modest reorientation of priorities in favor of technical education to prepare young people for jobs in, for example, manufacturing and construction would pay huge economic dividends.

Do states make New Year’s resolutions? If they don’t, they should. In Minnesota, the clock is ticking. A high quality of life can only be sustained by a strong economy. As we enter 2017, Minnesota should resolve to make its economy more competitive, so that the lifestyle we all enjoy can be preserved for our children and grandchildren.