Midwest Economy Blog

A Resolution (Revolution?) for the Midwest

August 2, 2008

“The Midwest is failing the challenge of globalization, largely because it’s so balkanized, with each state trying to compete in the global economy. Midwestern states are simply too small, too incompetent, too obsessed with the wreckage of the industrial economy, to deal with the problems of the future, like education. It’s time for other players — cities, businesses, especially universities — to come together in a concerted regional approach that would leverage the Midwest’s strengths, not undermine them,” said Richard C. Longworth, senior fellow, Chicago Council on Global Affairs and author of the new book, Caught in the Middle: America’s Heartland in the Age of Globalism.

Can regionalism boost the prospects of the Midwest? This is a theme investigated in several previous blogs by Bill Testa on this website. When is cooperation and when is competition the right approach in gaining regional advantage? How do you get people to “think regionally”? These questions were at the center of a two-day program that brought together a group of 100 business, academic and policy leaders in Minneapolis on June 26-27. The program was cosponsored by the Committee for Institutional Cooperation (which represents the Big 10 universities as well as the University of Chicago), the University of Minnesota and the Minneapolis Fed and was designed as a companion to two previous conferences in 2005 and 2006 held here at the Chicago Fed. The program had a specific mission—to discuss the role of human capital in the economic development of the region and to investigate whether greater regional cooperation might hold the key to a more vibrant future for the Midwest.

Human capital is a clear determinant of regional fortune. Evidence presented at the conference suggested that this is a two-edged sword for the Midwest. The region is rich in institutions that educate residents and produce valuable research. However, the Midwest is only average when it comes to its share of college educated workers in the regional labor market. There is also ample evidence that the region produces research at a prodigious clip and yet lags in product commercialization and the ability to attract venture capital.

The conference also investigated both the public and private returns to education. A presentation by Lance Lochner of the University of Western Ontario traced the income returns (i.e., the rate of financial return from investment in education) to varying levels of educational attainment. Lochner looked at the average financial returns received by men over the period 1940 to 2000. His findings suggested that returns were highest for high school graduates over this period but that the return to a four-year college education exceeded the returns from two-year college programs. Lochner noted that in addition to increased lifetime earnings, additional schooling improves health outcomes, increases personal satisfaction and often leads to more enjoyable careers.

Paul Glewwe and Amy Damon of the University of Minnesota examined the “public” or social benefits that taxpayers in Minnesota receive when students enroll in the university. The study identified several categories of benefits, including increased state tax revenues, reduced crime, increased civic engagement and lower unemployment. They estimated an annual economic benefit to the state of $672 million versus a cost of $284 million. This is a conservative estimate because it excludes any benefits from research activities and excludes other public colleges and universities in the state.

Another aspect of human capital discussed was the returns to early childhood education. Art Rolnick of the Minneapolis Fed discussed efforts to expand early childhood education access to low-income families in Minnesota. Research from several studies suggests that early childhood education has a significant impact on both economic and academic outcomes. Rolnick offered a model for expanding early childhood programs and suggested that the public returns to such efforts will be substantial. Early education programs would not only focus on child development but also on increasing the resources and training of parents in support of their children.

The focus of the conference shifted in the afternoon to a discussion of whether a regional approach would be best suited to solving policy challenges such as improving the region’s human capital. Lou Anna Simon, President of Michigan State University, suggested that institutions do have ample opportunity to increase cooperation to their mutual benefit. For example, Midwestern universities could cooperate on grant applications to improve their chances of obtaining research funds. Simon said that turf battles are often detrimental to the region’s overall success.

So, who takes ownership of a regional agenda?, Simon asked. Is there a blueprint for creating an organization that can promote regional cooperation? Many regions have looked enviously at the Southern Growth Policies Board as a model. Giving a Midwest example was Frank Beal of Chicago Metropolis 2020, an organization founded eight years ago with the goal of making the Chicago metropolitan region more economically competitive. This initiative emerged from a study conducted by the Commercial Club of Chicago in the late 1990s. The strong commitment, influence and resources of the Commercial Club and its continuing support have been important in helping Metropolis 2020 aggressively pursue change in four areas: the criminal justice system, early childhood education, regional growth and transportation.

Beal offered eight factors in Metropolis 2020’s success that might be applicable to a future Midwestern regional organization. Metropolis 2020:

  1. Has a clear blueprint of what the organization wants to accomplish.
  2. Benefits from having a relationship with the Commercial Club that provides stature and access to people and resources.
  3. Avoids agenda creep. Has a disciplined approach to reviewing new issues or taking on new assignments.
  4. Collaborates with other organizations only on its own terms. In practice this means clearly establishing the program goals before inviting others to join.
  5. Has mostly older senior professionals on staff. These people are issue experts, and they are doing this work because it matters to them.
  6. Does not view government as the problem. Many of the staff have had senior government positions and respect the role government plays in getting things done.
  7. Will not tackle an issue unless it is a natural fit with the organization’s expertise. Changing public policy requires expertise.
  8. Is ambitious and does not mind tackling audacious goals.

One final perspective on regionalism was offered by Tom Holmes of the University of Minnesota. Holmes observed that a fundamental challenge to any notion of regionalism is that any region is both arbitrarily defined and composed of a series of sub-regions. And so, depending on the issue, coalitions must form with an ever-changing cast of characters. Often the desire in regionalism is to establish a large umbrella organization to promote a broad regional agenda, but these efforts fail to recognize that the most successful regional policy efforts contract and expand to fit the size and scope of the issue.

The program concluded with the signing of a resolution by all of the attendees. The resolution recognized the shared history of the region and the challenges of adjusting to economic change. Solutions to the Midwest’s economic challenges will require an integrated response by business, public policy and higher education. Specifically, the resolution concludes, “We hereby resolve to actively explore ways to work collaboratively on solutions, bringing our best from business and industry, public policy and higher education, to contribute to a stronger economic future for the region.”

The next step in this investigation of regional cooperation is being sponsored by the Chicago Council on Global Affairs on October 6th of this year. This one-day program will examine the impact of globalization on the Midwest and why thinking regionally should matter. While the ultimate form of regional cooperation is clearly a work in progress, this discussion is clearly gaining momentum and reaching an ever larger audience.

The views expressed in this post are our own and do not reflect those of the Federal Reserve Bank of Chicago or the Federal Reserve System.

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