Insurance and Economy and Government and Economic Development and Manufacturing & Technology

ECONOMIC ANALYSIS: We want to spur economy, but what's the best way?

January 9, 2006

If you want to get an idea just how hot the topic of economic development is in Indiana these days, take a stroll over to the Department of Insurance's Web page. Instead of finding notices of regulatory proceedings or a lineby-line listing of the insurance code, you'll get a spirited, enthusiastic rundown of all of the reasons Indiana is a great state in which to locate your insurance company. If you happen to own one, that is.

That's a little extreme for some traditionalists, but it's not really out of line with what we need our governments to do. After all, if our traffic cops, building inspectors and insurance regulators are friendlier, more efficient, and just plain better than everyone else's, why not boast about it? When it comes to attracting businesses and households, government is certainly part of the equation.

It's hard to quantify these things, but you have to go back to the early 1980s to find a time when interest in economic transformation was running this high, especially in upper Midwest states like Indiana. At a time when the manufacturing economy is undergoing a sea change, and the doors to careers our parents and grandparents may have gone through are slamming shut, the old idea of simply waiting for the economy to turn around no longer seems feasible.

So we are busy, trying to find strategies and ways of redefining ourselves to move growth into a higher gear, both locally and statewide. And we're throwing some serious resources into the effort. Just take a look at the heavyweight corporate talent that's leading the Indiana Economic Development Corp. on its maiden voyage, reforming and revamping as it goes.

But the dramatic increase in talk of spurring economic growth has not necessarily been matched by advances in the state of knowledge of how it should be done. To be sure, there are new ideas and concepts out there, selling plenty of books and keeping consultants busy. And their notions of thinking regionally about growth, identifying key industry clusters to be nurtured, and developing the skills of the work force are eminently sensible and reasonable.

But do they really work? Leaving aside the old development ploy of simply claiming every job created as the fruit of one's efforts, the most compelling evidence of what makes for effective development strategies comes from studies conducted after the fact. We visit, say, San Diego or Austin, Texas, and conclude that what their leaders are doing is worth copying because their horses are riding high.

That's not bad thinking, either, of course. But as every social scientist knows, turning a pair of correlated events into a causal chain-and ultimately a prediction-is fraught with peril. Hot strategies and bestselling books aside, there are more holes in our knowledge about why some areas grow faster than others than we'd like to admit.

We know, for example, that more specialized-and more highly paid- workers also tend to be more mobile. They also tend to be more highly concentrated in urban areas. Even within a given urban area, they tend to live in the same suburbs or even particular neighborhoods. Which raises a difficult question-are high-flying cities and regions simply the cream of the overall economy, inexorably pulling the best talent away from underperforming areas at the latter's expense?

That's a depressing thought for the smaller, less successful communities that would emulate the high-fliers' achievements. For it suggests that, as much as a rich suburban enclave may offer few lessons for how its poorer central-city neighbor can prosper, so, too, the example of Austin or Seattle or even Indianapolis might have little relevance for growth strategies for the rest of their respective states.

We'd like to believe that rejuvenating our own local economies is more than just moving wealth-creating talent from one place to another, of course. And we'd also like to believe that what we do to help our communities prosper can make a difference. But while there are some popular answers out there right now for the questions we're all asking, there are no sure bets just yet.



Barkey is an economist and director of economic and policy study at the College of Business, Ball State University. His column appears weekly. He can be reached by e-mail at pbarkey@ibj.com.
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