Wisconsin Economy in Crisis — A Case for Transformation Through Innovation
The Wisconsin economy has suffered long-term erosion compared to other states, with negative consequences for the prosperity of its citizens. Its piece of the national economy started shrinking in the 1960s, and the slide accelerated over the last decade. It is unpleasant to deal with that reality, but transformation starts with an accurate assessment of where we are.
The facts speak for themselves:
- The state’s share of national Gross Domestic Product (GDP) dropped from 2.1 percent in 1963 to 1.7 percent in 2008. If Wisconsin had stayed at 2.1 percent, the state GDP would have been about $300 billion in 2008 instead of the recorded $240 billion.
- Per capita income, which had approached the national average in the 1990s, has dropped to 6 percent below average. That is a gap from the average of more than $2,000 per person. Wisconsin ranked 48th in personal income growth over the last three decades.
- Wage levels have dropped to 86 percent of the U.S. average, putting us at about the same level as Alabama. We have become a low-wage state.
- Wisconsin is a donor state, getting back 86 cents on each tax dollar sent to the federal government. That results in a $4 billion annual shortfall in dollars coming back to Wisconsin. Using a straightforward multiplier of 1.5, that spells a missing impact on the state’s economy of $6 billion a year.
- As measured with generally accepted accounting principles (GAAP), Wisconsin has in recent years incurred one of the largest deficits of all states on a per capita basis. Starting in a hole, the state budget for the 2011-2013 biennium will be extremely difficult to balance, especially since tax revenues are growing slowly.
- The fiscal crisis is reflected in the growth of Wisconsin debt, which grew from $2.7 billion in 1990 to $11.3 billion in 2009, giving the state one of the highest debt levels per capita in the country.
- Job growth and recovery over the last decade — before, during and after the Great Recession — have been sluggish, trailing the United States and neighboring states.
- Wisconsin is tainted with an often negative characterization of its competitiveness on taxes. That stems from a heavy reliance on the property tax and the individual income tax. That disadvantageous perception exists despite an average ranking when all sources of revenue, such as fees, are included.
- Other measures of sub-par performance over a long period include: minuscule levels of venture capital per capita; average numbers at best for business start-ups; a hemorrhage of jobs in manufacturing and business services; a net out-migration of college graduates and high earners and an in-migration of high school drop-outs; and a below average percentage of baccalaureates. A majority of people in the state believe that the state’s “best and brightest” can find better careers elsewhere.
It is not surprising, then, that 57 percent of the state’s population believes the state is on the “wrong track.” Some of the dissatisfaction is rooted in the reality that state politics has become increasingly polarized and therefore incapable of balanced, bipartisan solutions. Nor is it surprising that recent polls also show job creation was by far the top concern of Wisconsin citizens, well above other major issues like environmental protection and health care.
Pockets of Strength
The Wisconsin economic picture has pockets of strength. Reflecting the state’s heavy investment in education at all levels, there is much to like in the make-up of its work force. The state’s high school graduation rate of 82 percent ranks high; businesses laud the work ethic of the population; and the pool of skilled workers is deep, with more than 34 percent of adults holding at least a two-year degree.
The state is blessed with strong economic clusters that are anchored by market-leading companies. These clusters are the exporters that create much of the wealth for the state. Indeed, exports from Wisconsin that bring in outside dollars have generally trended upward in recent decades. The existing clusters include paper-making; advanced manufacturing; agri-business; medical devices; bio-medical technology; forest products; information technology, with strengths in medical and bio-informatics; printing; sensors, automation and controls; energy storage; finance and insurance; and health care. These are the engines of our economy. In addition, there are emerging clusters such as fresh water technology in the M7 region, composites in the Seven Rivers Region, and wind turbine manufacturing in the NEW North Region.
Another bastion of strength is the high level of research and development. Led by the University of Wisconsin–Madison, academic R&D is a $1.2 billion economic activity in the state, translating into more than 38,000 jobs. UW–Madison is perennially in the top three universities in the nation for R&D at more than $900 million, while the M7 Region, with the Medical College of Wisconsin, UW–Milwaukee, the Blood Center of Wisconsin and Marquette University, collectively pull in more than $250 million. The R&D labs create jobs on their own, and efforts have been launched to turn their discoveries into commercial products and the young companies that create the nation’s net new jobs.
Given the state’s failing economic track record compared to other states, the conclusion can only be that the state has not taken advantage of its strengths to create sustained prosperity for its citizens. Wisconsin leaders have developed a broad range of programs that alleviate the debilitating effects of poverty and joblessness, but they have failed at a strategic level to create a blueprint for sustained economic success, for robust job creation.
The economic development efforts of the state have been largely traditional in nature: recruitment of business from other states and countries; retention of existing companies with subsidy packages in the face of threatened shifts to other states; incentives for real estate development; major taxpayer dollars for work force training. Resources for recruiting and retention have been meager by comparison with other states, and successes have been limited. Work force training works best when there are open jobs to be trained for, not when workers are pushed through an education program to an uncertain end game. At best, the traditional economic development approaches have proved insufficient for building a dynamic, high-pay job base. At worst, while well-intentioned, they are unfocussed and non-strategic.
Because there is a clear need for fresh thinking on economic development — for an innovative strategy for Wisconsin — the Wisconsin Economic Summit Series was convened by a broad range of sponsors concerned about the future of the state. They convened the Summit because they operate on the premise that nothing works very well in a society, in a community, in a state without a strong job base. They call for a bias for bold action to deal with an economic crisis that has been decades in the making.
The Case for Bold Action
Wisconsin’s economy has been made and remade over time. Nineteenth century wheat fields gave way to modern dairy farms and cranberry bogs; territorial lead mines and turn-of-the-century logging camps eventually bowed to world-class manufacturing.
None of that happened without innovation and risk. Ingenious and often entrepreneurial people made bold decisions, in private and public settings, which kept Wisconsin prosperous in the face of changing markets and technologies.
Wisconsin can remake its economy yet again, this time to compete in a world where the challenges to its prosperity are more likely to come from Shanghai or Mumbai than Chicago or Minneapolis. As the state ends an election year in which a new governor and Legislature will be elected, the candidates for those public offices deserve to hear some of the best ideas available for — yet again — transforming Wisconsin’s economy. Business, nonprofit and education leaders need the same roadmap.
That transformation is well under way, in part because the markets wait for no one, and because Wisconsin, which represents only a fraction of the national and world economies, will be pulled along by external dynamics, like it or not. It is also under way because some bold choices have been made.
Those choices in recent years include building on the state’s research and development foundation, standing by investors who keep the faith in homegrown companies, and working to awaken an entrepreneurial culture that was dormant. Those choices were made during a decade in which Wisconsin lost 160,000 jobs in manufacturing, a shock wave that reverberates through the state to this day. Economists believe three-quarters of those jobs will never return. Manufacturing will still be there, production will keep growing, but like the long-time productivity improvements in agriculture, it will take far fewer people to make products. What 1,000 factory workers could make in 1950 can now be made by fewer than 200. Output increased six-fold in those 60 years. That trend of ever-greater productivity shows no sign of tapering. Further, we have competitors; one factory alone in China employs 300,000 workers, three-fifths of the manufacturing job total in this state.
To prosper anew, and to protect its historic quality of life, Wisconsin must champion emerging industry sectors, as well as the physical, governmental and educational infrastructures that will support them. The state must nurture a spirit of innovation in business, in education, which provides much of Wisconsin’s “human capital,” in state and local government, in health care and in its infrastructure for energy, telecommunications and transportation. It must align its priorities with a compelling strategy for the economy.
The recommendations that follow come from an inclusive, iterative process that epitomizes the Wisconsin Idea. It is a distillation of the best thinking of many of its citizens. The Wisconsin Prosperity Strategy represents an effort to bring forth proven concepts and bold initiatives that will build upon Wisconsin’s historic reputation for major reforms, for innovation in public and private domains.
The pay-off for any economic development strategy is family supporting jobs. That was reflected in the gubernatorial campaigns of 2010 when the central issue was job creation. Candidates for governor called for the addition of 250,000 to 300,000 well-paying jobs during the four years after inauguration Jan. 3, 2011. The stakeholders who drafted the Wisconsin Prosperity Strategy accept the premise that a quarter of a million jobs can be created by 2015 if this bold, integrated strategy is executed by the leaders of the state in business, education and government.
Click here to download the full Be Bold I report.