What Twin Cities lawmakers should learn from successful US cities

Every year American Experiment produces a report on Minnesota’s economy. The report analyzes how Minnesota’s economy is doing both in historical terms and compared with other states.

In recent years, one thing has become clear: growth in Minnesota’s economy has been declining. Our state also lags behind most states with below-average growth rates. While we have high income-per-capita levels, this is largely due to previous growth, and is also a factor of a high labor force participation rate.

The same is true when we look at Minnesota’s economic hub, the Twin Cities. Our 2020 Economy report showed that.

Between 2001 and 2019, GDP grew in the metropolitan portion of the U.S. by 42.5 percent, a rate which two of our MSAs beat — Mankato and Rochester — but which the other three lagged — Minneapolis-St. Paul, St. Cloud and Duluth. Compared to its peers across the United States, GDP in the Minneapolis-St. Paul MSA grew by 37.4 percent between 2001 and 2019, compared to 56.7 percent for its peers. Of those peers, the Twin Cities only outperformed St. Louis and Detroit.

What is driving this trend?

To some extent, what is true at the state level can also be applied to the Metropolitan regions. And for the most part, research evidence points to high taxes as well as an unfriendly regulatory environment as some of the biggest factors of declining growth.

Our previous reports, for example, have shown that Minnesota has some of the country’s highest tax rates, which drives down entrepreneurship and investment and forces productive people out of the state. Minnesota also generally ranks unfavorably on most reports analyzing regulations that affect economic freedom.

City-specific research is, however, a bit scant. Luckily, a new report from the Organization for Economic Co-Operation and Development (OECD) provides evidence showing that regulation has a huge impact on city economy growth.

The 2020 report, which compared city-to-city performance in growth metrics like job mobility, GDP growth, unemployment levels, and per capita income levels found that

… areas that are doing well are predominantly located in the south and the west. The main features of their success have revolved around embracing digital technologies, adopting local regulations friendly to job mobility and business creation, avoiding strict rules on land-use and housing market, and improving the wellbeing of the city’s population.

Certainly, what it means to improve the well-being of a city’s population is probably open for debate. However, there is no denying that compared to most cities, the Twin Cities do not score very well on land use and zoning rules, occupational licensing laws, minimum wage laws, and other labor laws, all of which affect job creation and growth as well as mobility.

Of course, some of this has to do with state law, which means city officials have little power over them. But other policies, like land use and zoning rules as well minimum wage, are city and local issues.

There is room for improvement

Much like at the state level, the Twin Cities have high incomes, but cannot necessarily be described as booming. In the OECD report, the Twin Cities are categorized as prosperous, which means that they have high incomes and low unemployment, but do not have the highest rates of mobility, job growth, or income growth. So to say the least, there is a lot of room for improvement in our Metropolitan economy.