here for PDF format
here for participants' responses to this interview.
Stinson, Minnesota State Economist
8301 Creekside Circle #920, Bloomington, MN 55437
September 16, 2011
Verne Johnson (chair), David Broden, Janis Clay, Paul Gilje, Kris Johnson,
Sallie Kemper, Tim McDonald, Jim Olson (phone), Loree Stinson
Summary of meeting:
Minnesota State Economist Tom Stinson gives the Civic Caucus an
introduction to the topic of economic growth in the context of the state's
present situation and longer term outlook. He discusses the available
tools for economic intervention, the relative merits of short-term versus
long-term thinking regarding growth, and the limits of government to
directly create jobs. Suggestions for creating a hospitable business
climate are discussed, including-but going beyond-tax policy.
Welcome and introductions
Stinson is a Professor in the University of Minnesota's Department of
Applied Economics and serves as the Minnesota State Economist. Stinson has
a special interest in public finance and regional economic development. He
received his PhD from the University of Minnesota in 1973.
the legislature will continue to be expected to take steps to improve the
state's economy, the Civic Caucus has decided to visit over the next few
months with people who have ideas to improve the economic conditions of
Minnesota. Today Stinson will begin the discussion by giving an overview
of the components of economic growth and prospects for intervention.
There are different ways to consider growth.
are two ways state economic growth can be thought of Stinson said: growth
in the total of the economy and per capita growth. If a state gets one
more worker making one more dollar per year that adds to total economic
output. But, in that case, per capita output would not rise but decline.
Per capita economic growth improves the quality of life on average, and
that is the kind of economic growth most people would prefer to focus on.
distinction has to do with the time frame of economic growth-whether the
expected window for job growth is a quick, two to four years or whether
that window is longer term, allowing actions that require more time to
develop, but that are longer-lasting in their impact.
policy makers and economists need to consider what measures they use to
assess growth: the dollar value of per capita personal or disposable
income, the number of jobs created or unemployment statistics.
past, Minnesota has been successful at cultivating long-term per capita
income growth, Stinson said. The state has gone from having 96 percent of
the national average for per capita income to 107 percent the national
average, over the course of the past half century.
States have limited tools to promote short term growth .
of short-term growth, Stinson said, options for state governments are
limited. He said that there are some possibilities for the federal
government by increasing the deficit, but given the state's constitutional
requirement to balance the budget state policy makers' ability to
stimulate the economy is limited to shifting appropriations among
funds from one activity to another activity increases jobs in the favored
activity, but decreases jobs in the program whose funding was cut, leaving
no overall increase in jobs. Minnesota can borrow for capital funding
purposes, but that means borrowing to finance the building or maintenance
of long-lasting assets. Unfortunately that will have only a modest effect
on short-term job growth since it typically takes two or more years for
the construction activity to get fully underway.
The state should focus on long-term growth.
laid out two methods for supporting long-term growth.
approach is that policy makers can seek over the long term to make
Minnesota more appealing to business by making the state a lower-cost
location for establishing and growing a business. Focusing on type and
overall levels of tax is an advantage here.
alternative view considers that Minnesota's competitive advantage has been
its educated workforce and quality infrastructure. A corollary to this
view holds that attracting and retaining a young, educated workforce has
less to do with taxes than with the state's ability to provide attractive
amenities and a high quality of life. Stinson acknowledged his inclination
toward this view.
An economic development strategy should be broad.
said one design element of a successful economic development strategy
should be to make it very broad so that policy makers aren't just shifting
resources from one sector to another or one firm to another without
creating any net increase in output. For example providing subsidies to
particular participants in the retail sector is questionable , because all
it does is take money from one shoe store, for instance, and use it to
Focus university research funds on areas of opportunity.
participant asked what industries in Minnesota are growing and which are
declining. Health care will be a growth industry, Stinson said. Something
to think about for the future is the mineral industry-copper, nickel and
iron ore, where both demand and extraction technology is developing. If he
were advising the president of the University of Minnesota or other
schools he'd advocate for more metallurgical research.
state should be wary of trying to pick winners though, Stinson cautioned.
Minnesota has tried that in the past, and we have not been successful.
The workforce will not continue to grow.
of demographic changes brought on by baby boomer retirement Stinson
predicted that growth rates in the state workforce will approach zero in
the foreseeable future. In the 1990's Minnesota's workforce grew at an
annual rate of 1.5 percent. In the 2020's it will fall to about 0.1
percent. In this context productivity will continue to gain in importance,
because more people will be supported by fewer workers. Talented workers
will become a scarce resource.
Minnesota's growth can be explained by the fact that for many years
employment opportunities in the state have been more appealing than those
in neighboring states, so we benefitted from inward migration from those
states. However, today fewer people moving here from around the upper
state needs to consider carefully how it can attract people who have the
skill sets necessary to be successful and to positively impact the state's
College tuition rates may be an impediment to growth
to be thinking about the incentives created by tuition policy, Stinson
said. Right now it costs someone a lot of money to become an engineer, for
instance. If we want more homegrown engineers for the Minnesota workforce,
might a change in tuition policy provide more incentive to study here
rather than at other universities?
Certainly post-secondary education is an area where the primary benefit
goes to the individual. But there is considerable societal impact as well.
We may need to begin thinking of recruiting programs for a highly educated
workforce in much the same way as we consider tax subsidies for new
Combining vo-tech , community colleges and state universities may not be
the best policy.
reason why Minnesota has done so well isn't necessarily because solely due
to the quality of the University of Minnesota's liberal arts graduates,
Stinson said - it's more due to the well trained workers on the factory
floor. The vocational and technical schools are central in positioning for
future growth. Minnesota used to be a leader here and isn't now.
he is not sure that consolidating the community colleges or technical
schools with the state colleges and universities played out quite the way
people thought it would. He worries that when a group of academics and
people more oriented to practical experience are combined the academics
will receive primary attention and those with applied expertise will get
less, to the detriment of a trained factory work force.
manufacturing has become a less prominent factor in the economy, not just
in the state but also nationally. Part of the cause is foreign
competition, but there are also basic reasons in the evolution of the
economy. As income increases the additional spending that ensues is
increasingly on services rather than manufactured goods. The same
phenomenon occurs as people age, with fewer purchases of things and more
of needed services.
The state needs a shared vision for where it wants to go.
agreed with a participant that the state would benefit from some kind of
unified vision or overall state planning, saying that in the past twelve
or thirteen years there hasn't been much effort in this area. Part of the
problem, he observed, is that just having a plan by itself isn't
sufficient unless there is acceptance of the plan. In the Perpich and
Carlson administrations he said there seemed to be more of a shared vision
across the state than there is now. At present there is no consensus on
where the state needs to be or how to get there. Instead people seem to be
saying we're going to be better, without a common agreement on what
Consensus will no doubt be difficult to attain. Stinson described an
experiment State Demographer Tom Gillaspy began doing recently at meetings
where he would hand out forms that said 'Minnesota should be the
__________________ state,' and people had to fill in the blank. To date,
there has been little agreement on how that blank should be filled.
Aid business startup by developing industry-specific conditions.
question regarding how a town such as Thief River becomes the epicenter of
global distribution for certain digital products (Digitech), Stinson said
sometimes the explanation is serendipity-someone happens to live there, or
there are the right kind of facilities available.
question, he said, is "can we do more to encourage this?" People talk
about tax burdens being a decisive factor, he said, but when you're a
startup you're not paying any tax so that's not the driving issue. It's
true venture companies, like to fund the company down the road building on
a good idea, that makes for vital business growth. There's a sense that
some communities are easier to grow a company in and we need to explore
what constitutes a nurturing environment.
participant pointed out in the case of medical devices there is a
supportive environment for the industry in Minnesota with the regulatory
expertise, animal research labs, and industry-specific consulting talent.
It's also about momentum, a participant observed-if you're not constantly
growing you're losing ground. And, it is also about future thinking:
Medtronic in the early days was comprised of people from Honeywell looking
forward to the next big growth opportunity.
It is a difficult time to plan.
state is moving toward uncharted territory and, as often referenced, a
"new normal", Stinson concluded. Furthermore, we don't know with certainty
what that "new normal" will turn out to be. The situation is complicated
by the fact that the demographics of our aging population. In the 1950's,
1960's and 70's our economic growth was easier to predict. The questions
then were: How do we get jobs for Baby Boomers and provide education for
veterans? It's less clear now. Thinking about long-term growth of the
state has to be done in the context of this uncertainty.
D. Thank you.
Chair thanked Dr. Stinson for meeting with the Caucus to explore this
important topic and to set the background for investigating other ideas
for growing the Minnesota economy.