ECONOMIC ANALYSIS: Improving state's economy requires a team approach

May 15, 2006

More than 50 years ago, the famous economist Joseph Schumpeter told a simple story that perfectly captured the essence of market capitalism. It's a turn-of-the-century tale of a railroad being built in a part of the country where none had existed. The new investment rapidly upsets the order of everything-once ideally situated towns are left high and dry, while others move up in stature as they exploit newfound advantages. It's messy and it's painful, but the result is for the greater good.

Some version of that story is happening in the economy everywhere you look. Changes in technology, changes in energy prices, even changes in the political environment cause crises for some companies and workers and opportunities for others.

But consider this: Throughout all the change that has occurred over two centuries in the economy and our society, the structure and many of the functions of our public institutions have remained stubbornly intact, particularly at the state and local level.

You have to wonder, for example, whether the system of townships-first laid out in the Northwest Ordinance of 1787-remains an optimal, or even viable, method of organizing public services today, almost 220 years later. Or whether Indiana's 92 separate counties are an asset, or an impediment, to helping our state meet the challenge of preparing the work force and re-energizing the economy.

Such talk is ominous and threatening for those of us who work in the public sector. Reorganizing and restructuring promise pain and disruption, and possibly even unemployment. Indeed, the chaos caused by a public-sector restructuring promises to be even more intense than what the private sector must occasionally endure, if only because it is so rarely implemented or even contemplated.

But perhaps we should contemplate it nonetheless. Meeting the challenge set most recently by the Indiana Economic Development Corp.-to close the earnings gap between Indiana jobs and the rest of the country by the year 2020-is going to take every arrow in our quiver. So why not look at the public sector for improvement as well?

Across a wide spectrum of public services-from public safety, poor relief and tax assessment, to bus transportation-there is wasteful duplication across adjacent and overlapping levels of government and glaring inefficiencies staring us in the face. If we were starting from scratch today, would we design a system where county and township assessors, sheriffs and city police chiefs, or county and city building inspectors, do the same jobs for many of the same people every day?

But making headway in government efficiency-performing the same public functions with fewer resources-is just part of the equation. Economic development in particular has been hamstrung by the disconnectedness between silos of government. Just talk to big-city mayors who pour their hearts into attracting and retaining the best businesses and residents. They quickly learn that what prospects perceive as one of the most important aspects of their community-the quality of their K-12 educational system-lies largely outside their sphere of influence.

That's why alignment has become a big buzzword in the world of economic development strategy lately, particularly regarding labor force development. The world we inhabit today has mayors and economic development officials who answer to local voters, and school superintendents who design curricula and manage according to guidelines set forth by the state of Indiana. Is it any wonder they're not always on the same page?

That's changing in many communities, but not rapidly enough. The benefits of alignment among all the institutions that affect economic development, including those in nearby counties once considered competitors, are too important to our future to be realized only by those regions blessed with enlightened, selfless leaders. We need to start thinking about how we can reorganize and restructure our public institutions to guarantee that it happens.

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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