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ECONOMIC ANALYSIS: Improving state economy defies simple measures

November 6, 2006

The replacement of the Indiana Department of Commerce with the privately directed Indiana Economic Development Corp. has been mostly a non-issue in this election season. While most of the fist-pounding, face-reddening rhetoric has been directed at such meaty issues as how long we wait when we go to the BMV office once a year and whether or not we should reset our clocks each spring and fall, the issue of how we go about reinventing and reinvigorating the economy that puts food on all our tables has seemed to fall through the cracks.

What does that say about us? To my mind, it is a sure sign an economic rebound from the recession of 2001 has taken firm hold in Indiana. In states like Michigan, where the economy remains in free fall, it has pushed most other issues aside. But in our state, significant job growth began again in the fall of 2003, and has brought the state's employment total back to within striking range of its pre-recession peak.

That doesn't mean everything is fine with the Indiana economy, or even that job growth will continue into next year. But it is an unavoidable, if unfortunate, fact that the only time when calls for action on the economy occur on street corners and in barbershops is when the news is bad.

Traditionally, the connection between the state of the economy and political debate is fairly crude. Election challengers blame incumbents for everything bad, and those in power claim credit for everything good. Given state government's comparatively small direct influence on the ebbs and flows of private-sector economic activity, the situation would be almost silly were it not for the deadly serious nature of what is at stake.

It would make more sense to evaluate the effectiveness of what we are doing to promote and support the economy at the state level along with-or perhaps instead of-the performance of the economy itself. If the IEDC is doing a good job, it might not show up for a number of years in the economic statistics we all pore over. And if, in fact, the organizational structure of the IEDC is a superior way to conduct the economic development business of state government, it should survive long enough to get the job done, instead of falling victim to the inevitable cycles of politics.

But what is that job exactly? There is no easy answer. Some, perhaps most, statelevel economic developers do what local economic developers do, except that their pockets are deeper and their territory is bigger. It's all about making deals, securing commitments from companies to make new investments in the state through every means possible, from general marketing to special incentives and even cash payments.

It's a job that has done well, with big wins like Honda in Greensburg and Jeffboat in Jefferson capping a list of impressive accomplishments. Those events have affected the entire state emotionally and, of course, promise to have a tremendous impact on those individual communities economically. But at the same time, the rest of the economy has dealt us blows associated with the declining importance of Big Three automakers and the weakness in housing markets. It remains a tough environment for many kinds of businesses Indiana has always been known for, no matter how effectively we market and package ourselves.

That underscores the need for a very different kind of role for the IEDC that few local agencies have the resources to pursue-the development and implementation of an effective strategy to tap into the faster job and income growth the rest of the country has enjoyed for several decades running.

We all know what the problem is. Knowledge-based jobs that have been the key to faster growth elsewhere are harder to find here. How do we point what has traditionally been an industrial-based economy in that direction?

To their credit, IEDC has at least gotten started on the problem with its strategic blueprint. But the more easily quantifiable short-term successes, not to mention the improved overall economic climate, have clouded the picture of late. For the sake of those who will work here in the coming decade, let's hope they regain their focus.



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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