1986-2011 and Beyond

Louis Johnston chairs the Department of Economics at the College of Saint Benedict and Saint John’s University, and is a frequent commentator on Minnesota Public Radio.

The Minnesota Initiative Foundations, or “MIFs,” were born in the aftermath of the worst recession — at that time — since the Great Depression. On their 25th anniversary, they find themselves again dealing with the effects of a recession, this one even deeper than the 1981–1983 downturn.

How has Minnesota’s economy evolved between these two events? In particular, what were the economic challenges faced by the MIFs during their first 25 years? And, what are the economic challenges they face today? A look at Minnesota’s economic history can help us explore these questions, and consider the MIFs’ roles in how they are answered.

The Big Picture: Minnesota after World War II

Income per capita in Minnesota is above the national average today, but it has not always been so. The state began the postwar period with income per capita at about 85 percent of the national average; over the next 30 years, standards of living rose more quickly in Minnesota, passing the national average in the 1970s and surging above it in the 1990s. Public and private investments in physical and human capital, such as education and healthcare, have contributed to Minnesota’s impressive economic performance. Only two other states, New Hampshire and Virginia, went from below-average to above-average incomes during the postwar years.

The structure of Minnesota’s workforce has also evolved. From the end of World War II to 2010, the portion of Minnesotans working in agriculture fell from almost 10 percent to about 5 percent; our manufacturing workforce fell from about 25 percent to 12 percent; and mining employment went from nearly 5 percent to barely 1 percent. In the meantime, however, statewide employment has increased dramatically in service industries such as banking and finance, information processing, and retail/wholesale trade — rising from 15 percent of the workforce in 1947, to over 35 percent today.

Minnesota’s Economy Since 1986

The MIFs were founded in the wake of the 1981–1983 recession. The national unemployment rate peaked at 10 percent, while Minnesota’s jobless rate reached 9 percent in late 1982. Of even more concern were the deep structural changes sweeping through Minnesota’s economy.

Agriculture and Rural Economies.

photo_0_intro_1In the mid-1980s, Minnesota’s agricultural economy was in the midst of a historic transition. A boom in farmland, driven by the high inflation of the 1970s, had collapsed, leaving a trail of bankruptcies and foreclosures across Greater Minnesota. Small-town banks held the mortgages, and with the collapse in land values they lost their ability to make new loans. This hurt local communities deeply, making it difficult for families and businesses to obtain needed credit. Many small farms disappeared and larger, more technologically advanced agriculture took their place. After 1986, the economies of entire regions were transformed. Some towns shrank and lost essential businesses and services, while others grew as centers of retail trade and healthcare, for example. New industries such as biofuels became key players in agribusiness, and the importance of agricultural exports grew steadily.

Manufacturing, Transportation, and Mining.

In 1979, Don Larson’s Land of the Giants reported, “One of every six workers in the U.S. computer hardware factories is a Minnesotan, and 12 cents of every dollar’s worth of computers produced in the country come from Minnesota.” Burlington Northern Railway and Northwest Airlines were both headquartered in Minnesota, and the iron mining and taconite industries were at their peak in terms of output and employment. This changed radically in subsequent years. Computer hardware companies such as Control Data vanished. Burlington Northern and Northwest went through mergers and relocated. The taconite industry is a shadow of its former self. Still, Minnesota fared better than states like Michigan, Indiana, and Wisconsin. Our medical device industry hired many engineers and technicians formerly employed by computer companies, and became one of the country’s largest. Target and Best Buy hired logistics and pricing specialists from the railroads and the airline industry to help create a revolution in retailing. And, after years of difficult restructuring and technological change, mining remains an important part of Minnesota’s economy.

The Service Sector: Private and Public.

In the early 1980s, Minnesota already had a strong regionally based, regionally focused service sector. Retailers such as Dayton Hudson and Supervalu and financial institutions such as First Bank System and Banco (forerunner of Norwest) were headquartered in the Twin Cities, with stores, warehouses, and branches throughout the region. Over the next 25 years, companies changed their focus to compete in a global economy, and familiar names such as Dayton’s and Norwest transitioned to Macy’s and Wells Fargo — but the underlying companies continued to thrive. At the same time, a revolution was taking place in services such as healthcare and education. Many teaching and nursing jobs went from either low paid or volunteer, to a more professional status. An expensive proposition, this also led to rising costs and increased pressures on government at all levels.

Minnesota Initiative Foundations: 2011 and Beyond

photo_0_intro_2Collectively, these structural transformations in agriculture, in industry, and in services meant that our region’s underlying physical and human capital needs were also changing.

To meet these challenges throughout these decades of change, the Minnesota Initiative Foundations developed a rich variety of programs that have aptly evolved through the years. To strengthen the state in both good times and lean, they make grants to nonprofits and provide loans to businesses to help create new jobs and retain existing businesses. Joint efforts like their Minnesota Early Childhood Initiative and THRIVE Initiative help get our youngest off to a positive start, fostering the healthy and educated workforce necessary for future development. When entrepreneurs need financial and technical resources to create new businesses, the MIFs respond with loans to encourage robust development, and training and technical assistance to connect start-ups with the resources they need for success.

Minnesotans have a national reputation for community engagement, consistently ranking at the top for volunteerism, voter turnout, and active participation in civic dialogue. Given our demonstrated care for our communities, the MIFs have also wisely helped develop a statewide framework of community philanthropy — empowering residents to invest in their own hometowns and regions, through targeted funds dedicated to everything from improving healthcare delivery to providing scholarships for local students.

Minnesota’s economy faces challenges in the next 25 years that will be just as daunting as those of the past quarter century. We will need to pay close attention to three resources that are critical to long-term economic growth — resources to which the Minnesota Initiative Foundations are already keenly attuned.

First, in the realm of human capital, we must close the achievement gap and improve healthcare for an aging population. This will provide Minnesota with a better-educated and healthier workforce for the future. Second, particular physical capital needs must be addressed — repairing and maintaining infrastructure, especially roads and water/sewer systems, so businesses can locate and thrive throughout the state. Third, natural capital has always been a foundation of Minnesota’s economy. We must balance our economic needs for mining, timber, and other resource-based products, with society’s needs for a clean environment and outdoor recreation.

For 25 years now, our Minnesota Initiative Foundations have played important roles protecting and improving access to such resources. They do so by remaining at once proactive and responsive to changing economic conditions, constantly strengthening valuable loan and grant programs and community initiatives, forging nimble partnerships, and bridging community needs and capacity within and across regions.

These six economic strongholds have devoted decades to developing and maintaining the businesses, vital programs and services, and innovative community planning that today are the lifeblood of our state. With new challenges and untold opportunities to come over the next 25 years and beyond, Greater Minnesota’s long-term prosperity may well depend on the strength of our enduring partnership with the Minnesota Initiative Foundations.

But our children’s history will tell that story.