ECONOMIC ANALYSIS: Until Indiana diversifies, economy will struggle

June 20, 2005

Sure, General Motors Corp. is in trouble, and quite a few Indiana communities are directly in harm's way. The headlines say it all. Plant closings-above and beyond those already planned-are on the way. GM bonds are rated as junk. Its market share is at an historic low. And it's discounting just about everything on the lot.

For a company that has been the No. 1 automaker in the world for four generations, its recent stumbles have to be humbling. Pressed by competition from abroad and by a union agreement that limits its options to address its problems, GM is not far from what can only be called a crisis.

That's certainly a problem for Indiana. The economic footprint of GM in our state is huge. We learned that during the wildcat strike eight years ago when a paralyzing shutdown at a Flint, Mich., facility practically stopped the company, sending shock waves through communities all over the state.

But the demise of GM as the No. 1 automaker is just a symptom of a larger problem for the state of Indiana. Should GM fail, or just get smaller, we have little else growing to eventually take its place. We are a state that depends more on large, mature employers for our economic livelihood than any other in the nation.

More than half the jobs and nearly 60 percent of the wages in our state's private sector came from companies that employ more than 500 workers, according to the Small Business Administration. That puts us in the top 10 of "big business" states, higher than most of our Midwestern neighbors.

But part of Indiana's large-company bias comes from the fact that we are a manufacturing state, since manufacturers tend to be larger than other kinds of businesses. So let's compare apples to apples and examine how Indiana manufacturing companies compare in size to manufacturing companies in other states.

The results are even more stark. In 2003, according to the payroll information from the quarterly census of employment and wages, Indiana's average of just fewer than 70 workers per manufacturing facility was the highest in the nation. Every one of the 12 development regions designated by the old Department of Commerce has manufacturing facilities substantially larger than the 38-worker national average.

The north-central region of the state, centered in Kokomo, is home to the largest manufacturing facilities, whose average work force is just short of 100 employees. Even the smallest region, centered on New Albany along the Ohio River, has larger manufacturers than the national average.

So what? Big companies pay good wages, don't they? And it's hard to think of a community that doesn't jealously guard-or covet, if it doesn't already have-an Eli Lilly and Co. or a Cummins Inc., or a Delphi Corp. facility in its midst.

For those lucky enough to have those jobs, it's not a problem at all. It's the rest of the economy that's at issue. That's because economies dominated by larger, mature companies are trailing the pack in overall job growth.

The best-performing communities nationwide are those that have high rates of new-business formation and a high proportion of medium-size, faster-growing companies. Those two characteristics do not describe most parts of our state, unfortunately.

The success or failure of General Motors is something its employees, managers, customers and competitors ultimately will decide. Clearly, a healthy GM is a good thing for our state. But if we're ever going to gain ground on the rest of the country in economic growth, we've got to start planting some eggs in different baskets.

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