‘Home-grown’ strategy would create more jobs

ECON 101 with Jake formerly of the LP

Note about the author: Jake formerly of the LP writes extensively about his personal opinions of economic development issues. 

jobs

A better economic development strategy would focus on “home-grown” Wisconsin jobs.

Lost in the GDP and jobs data last week was another report released by the Bureau of Labor Statistics that illustrates another way Wisconsin is lagging our Midwestern neighbors. The BLS’s Business Employment Dynamics Report continues a pattern we’ve seen during Governor Walker’s tenure, where Wisconsin firms will not add jobs at the same rate as the rest of the nation. The state was 45th in jobs added as a percentage of total jobs in the last three months of 2013, and Wisconsin was in the bottom 10 in the nation for this stat for all four quarters of last year. We also were dead last when compared to our Midwestern neighbors, helping to explain our stagnant economy.

Jobs added as % of total jobs, Q4 2013 
Ind. 6.1%
Mich 6.1%
Ohio 6.0%
Ill. 5.9%
Iowa 5.9%
Minn 5.7%
Wis 5.5%

Worth noting is that Iowa and Minnesota each had unemployment rates below 5% at the start of Q4 2013, which makes me wonder if firms can’t find enough workers to add all the jobs that they would want to – a problem Wisconsin wouldn’t have had with their 6%+ unemployment rate at the time.The interesting flip side of that stat is that Wisconsin also loses fewer jobs than most of our neighbors, which is befitting a state that won’t take risks (and likewise has more failures). But because of the lack of jobs being added, it makes the bragging of the Walker Administration about “low unemployment claims” meaningless.

Jobs lost as % of total jobs, Q4 2013 
Minn 5.7%
Mich 5.6%
Iowa 5.5%
Ill. 5.4%
Ohio 5.3%
Wis. 5.2%
Ind. 5.1%

A business that starts in Wisconsin is far more likely to grow here and add good new jobs that stay in our state. And these kinds of small businesses are the ones that create the lion’s share of new jobs, while large companies tend to remain static or decrease employment over time.

Then again, these stats shouldn’t surprise you much. And State Senator Julie Lassa from Stevens Point thinks a lot of it reflects the Walker Administration’s strategy of favoring corporations over small businesses.I think the outsourcing issue brings up larger questions, however, about what the state’s economic development strategy ought to focus on. It is tempting to focus on “smokestack chasing,” the strategy of trying to lure the big corporate headquarters or huge new expansion facilities to locate in our state. And it’s easy to see why: it brings hundreds of jobs in one fell swoop and promises to make a big impact on the local economy.

But luring a big national or multinational firm puts Wisconsin in a bidding war with other states and even other countries that are also vying for those jobs. Incentive packages can involve millions of dollars in infrastructure improvements, loans and tax credits. As a result, this kind of competition can eat up a large proportion of the state’s job creation investment. One Wisconsin Now’s recent report on WEDC found that 60 percent of the agency’s economic development funds went to only 30 percent of businesses receiving assistance. That’s $570 million out of a total $975 million in awards going to some of the largest corporations in the state. And, as the recent headlines have shown too clearly, the jobs that come into the state today can leave just as easily tomorrow.

There’s another way to promote economic prosperity, a strategy you might call “growing your own.” A business that starts in Wisconsin is far more likely to grow here and add good new jobs that stay in our state. And these kinds of small businesses are the ones that create the lion’s share of new jobs, while large companies tend to remain static or decrease employment over time.

Instead of “growing our own,” the Walker administration has encouraged a policy of giving tax breaks and WEDC handouts to campaign contributors over encouraging small-business start-ups and increasing the talent base in the state.

We don’t have to look far from home for examples of this phenomenon. The school software company, Skyward, was started in a Stevens Point garage; it now employs 275 people and plans to add hundreds of more jobs in the near future. Organic Valley started out as a small food coop in LaFarge; today it has customers all over the country, buys produce from farms all over central and western Wisconsin and has a large distribution center in Cashton in Monroe County. Central Waters Brewing was started by two home brewing enthusiasts in an old car dealership in Junction City. Its 18 employees expect to sell 13,000 barrels of their products this year from the new facility the company built in Amherst in 2007.

Instead of “growing our own,” the Walker administration has encouraged a policy of giving tax breaks and WEDC handouts to established corporations and campaign contributors over encouraging small-business start-ups and increasing the talent base in the state. The result is jobs being added only as a last resort, and very little being done in terms of increased firms and competition (in fact, competition seems to be discouraged by this WMC-supported crew). No wonder the Kaufmann Family Foundation ranked Wisconsin 45th in the nation in 2013 for entrepreneurship.

Not surprisingly, the only area of Wisconsin that seems to be consistently attracting a sizable amount of “new economy” talent (Sen. Lassa’s examples aside) is Madison, which is heavily involved in quality of life and education as a focus, and openly welcomes people from outside of the area to contribute to the city’s scene. Maybe that’s something the Walker administration could learn. But I’m not counting on it, since he has not shown an interest in growing a strong, long-lasting Wisconsin economy. So I posit that we need an actual Madison businessperson to take charge in order to get Wisconsin out of its doldrums.