Let’s say, hypothetically, that you live in a city.
And in that city there are 19 big companies. They have everything that makes up a big enterprise – a CEO, executives, management, stores, labs, manufacturing plants – in your city.
And then the economy picks up. And the 19 big companies hire more people, because a good economy means good sales, which means you gotta develop, build and sell all of those 19 sets of products!
So what’s the measure of the good economy? ”19″? The number of big companies in your town?
We’ll come back to that.
Then, driven by high wages and the need to be competitive, the 19 companies outsource their manufacturing to the Philippines. All the people in your town that earned a living from building things for those 19 companies are out of work.
How’s the economy measure? Still a “19?”
And then the price of R and D rises, and the companies relocated their R&D labs to India and Singapore and Slovenia. All your researchers are out of work.
Is your city still a “19?”
And then the economy tanks. Stores scale back and lay people off, managers get RIFFed, the work force plunges. Your town’s unemployment lines are getting longer and longer…
…but there are still 19 CEOs and corporate boards in town. They administer companies that do their R&D and manufacturing elsewhere, and sell to whomever can afford the products through stores that are ever dingier and more understaffed.
But those 19 CEOs are still in your town. So the town’s economy is healthy. Right?
If you said “what, are you kidding?”, you might be a conservative.
If you didn’t, you probably think this piece by Dave Mindeman at MnpAct makes perfect sense.
North Dakota and Wisconsin taunt our borders with new signs that say – Our State Is OPEN For Business!
Everybody seems to be overlooking the basics here.
Sure taxes have some effect on business decisions….so do a lot of other things. Let’s look how Minnesota compares.
Now, let me make sure I reiterate; Mindeman is one of that tiny minority of Twin Cities leftybloggers that don’t need to be under police surveillance.
But when he says “let’s look how Minnesota compares”, what he really means is “let’s cherry-pick some non-sequiturs as absurd as the fictional list of company CEOs in my example above”.
The Facts: Minnesota has 19 Fortune 500 companies. Five are in the top 100. Fourteen in the top 300. United Health ranks the highest at #22. Minnesota ranks 17th in the nation for total GDP. We rank #14 in GDP per capita. Our current unemployment rate is 5.3%. Our high school graduation rate is 91.6% (National average is 85.4%) Persons with at least a Bachelor’s Degree – 31.8% (National Average – 28.2%) Median Housing Value – $201,400 (National Average – $186,200)
Let’s leave aside for a moment the factors that have nothing to do with measuring economic health (graduation rates are nice, and might – maybe - predict the future, economically. Or they might not. But if 100% of your town has masters degrees, but they’re all in Women’s Studies so the unemployment rate is 100%, what’s the real (hypothetical) measurement?);
We’ve got 19 Fortune 500 companies. Bully.
Now – are those companies creating jobs in Minnesota? Is 3M building new plants in Minnesota? In fact, they literally exported one plant, with hundreds of jobs that used to be on the East Side of Saint Paul, to South Carolina. And do you remember when they used to do R&D in the Twin Cities? Welcome to Austin!
Medtronic? Aren’t they contracting? Well, here they are. In Tennessee? Not so much.
Boston Scientific? Well, they’re not expanding anywhere – but it’s here in MN that they’re contracting fastest.
When was the last time Ecolab built a plant in Minnesota? (Trick question; it was the seventies).
It’s not just big Fortune 500s, of course; Red Wing Shoes is eyeing a move. Jostens is shifting jobs from Owatonna to Texas, the first of what will likely be many moves to lower-tax states. We talked about the iron mill that’ll be built in North Dakota rather than the Range last week.
But we have 19 headquarters here. Right?
Well, doy. Of course we do. If you’re a Fortune 500 CEO, where would you rather live – around Lake Minnetonka, the Guthrie, the Ordway, with Cathedral Hill restaurants and Galleria shoppping, or up in some holler in Mississippi, sweating through your underwear? It’s a no-brainer. And that creates jobs – for management, for MBAs and upper management, sure – and their administrators and financial planners, and bartenders and caddies and nannies and gardeners, too.
But where are you going to build the plant, and create the jobs, especially for the people who aren’t management? Who don’t have the MBA and the BMW and the career spent networking among the corporate elite and the decades of experience in a field?
You did see the paragraph about all the “Minnesota” companies building plants elsewhere, right?
So, how do we compare with our neighbors?
Vs. North Dakota: Sure North Dakota has a very low unemployment rate. A big surplus. And most of all an oil boom. But North Dakota doesn’t have a single company in the state on the Fortune 500 list. Not one single business.
Remember that next time you run into an unemployed Ford Plant worker; “hey, you’ve got no job, but at least we’ve got lots of headquarters here!”.
Of course Minnesota has the Fortune 500s. Minnesota benefitted from what mattered to people, and companies, when population patterns were largely set, back in the 1800s and early 1900s; proximity to resources, plus water, rail and eventually road communication, which led to an urban center; this center became the center the upper-midwest region, the part of the country west of Chicago and north of Omaha and Saint Louis and east of Denver. The era when the big Fortune 500s we currently have were largely formed. An era that, according to some thinkers on the subject, is on its tail end, and will be over someday soon.
In total GDP, North Dakota ranks 50th out of 51 US economies – and although they do better in per capita rank (20th); of what value is a low GDP with a total population that would fit into Hennepin County?
Leaving aside that Mindeman brushes aside an amazing statistical anomaly – a state that was poor, with a low, agriculture-related GDP fifteen years ago, that is now batting thirty spaces above its weight, in league with the big, inflation-adjusted coastal economies – like it’s no big thing, he gets the real question backwards.
What could Hennepin County – whose unemployment and crime lead the state, whose schools are among the worst in the state, whose achievement gap is a state disgrace, and whose major city is rapidly fulfilling Joel Kotkin’s predictions of the obsolescence of the big central city – do if they used their resources, their inherent dynamism and their talents as wisely as North Dakota has?
North Dakota may be having an economic “boom”, [Why the scare quotes, Dave? It's a boom. No bones about it!] but why would any business consider a major move to a state that has a total market of about 800,000 people and a GDP that is about 1/8 of Minnesota’s? Really?
So many problems with that statement. So many confirmations that DFLers just don’t get economics. Where to start?
Mindeman is reliably imprecise when has asks “why would any business” move to North Dakota.
Best Buy? 3M? Starkey Hearing? They’re not going to move to North Dakota. What’d be the point?
You want to start a trucking company? You’ll be making money hand over fist. A machine shop in Minot? You’ll be working three shifts seven days a week the moment you open your doors. A house-cleaning service? Accounting firm? Security company? Contract law firm? Gas station? Hotel? You’ll have more business than you can handle.
Mindeman runs through all the neighboring states – focusing especially on the relative dearth of Fortune 500s in Iowa and the Dakotas – and asks:
Again, is that the type of market that can attract major business?
Why the obsession with “major” businesses?
The “Fortune 500″ is an arbitrary set of companies (or was – it hasn’t actually been published in ten years), set by the editorial staff of a magazine. It focuses, by definition, on the 500 biggest companies, in terms of sales, profits, assets, market value, and employees.
Not growth. Not innovation. Just sheer size.
Are these companies the major sources of American economic dynamism? Of innovation, strength, or even new hiring? No. They are not. Small business is.
Sure there are plenty of people moving out of Minnesota and heading south, but that has been a weather trend that has been going on for decades. Our population is holding better than any of the states that border us.
Another factoid that Mindeman sails past like a mile marker on 94 headed west for good.
Why have people been leaving for decades? Why is Minnesota on the cusp of losing a Congressional seat?
If you think it’s the weather – the Dakotas are growing.
Let’s put the question this way; if you’re a financial researcher with an MBA, your best shot at a job is in one of the big metro areas, with a big company. Ditto if you work in political non-profits – you go where the politics are. Big cities.
But if you’re a person with a high school education, maybe with a child to support and some bills to pay, which state would you rather be in right now – North Dakota or Minnesota?
Republican talking points are only so much hot air.
Minnesota’s quality of life is thriving and we are the Midwest model for business.
That’s what the facts say.
And maybe in a future post Mindeman will explain exactly why, in terms other than “CEOs per acre”.