Published: March 10, 2009 09:39 am      

Q&A with state economist Stinson

A Q&A with Minnesota state economist Tom Stinson



Q: The nation and Minnesota are in a deep recession, how do we get through these tough times?

A: There is no denying we are in very difficult economic times. This recession is almost certainly going to be the longest since World War II. It may also be the deepest. To this point the American economy has lost 3.6 million jobs and we could easily lose another 2.4 million before firms begin to add employees. Most forecasters expect the U.S. unemployment rate to approach 9 percent over the next 18 months, some expect it to go even higher.

In Minnesota we have lost 56,000 jobs since December 2007, 45,000 of them since September. Our unemployment rate now closely tracks the U.S. average, and there is no good reason to believe that it will not follow the national rate higher.

That said, and that is a load of negativity, the U.S. economy and Minnesota’s economy will begin to grow again. It will take time, maybe more than a year. But, we are not in an extended economic decline like the Great Depression when between 1929 and 1932 unemployment rates reached 25 percent. Nor are we in an extended zero-growth period like Japan went through in the 1990s. The challenge facing us as a nation, and as a state is to make sure we are positioned well for strong long-term growth once the economy turns around.



Q: How do we do that?

A: We start by recognizing that productivity is the key to economic growth in the 21st century. The countries, states, and regions where productivity improves most will be those where the standard of living increases the most.



Q: Why is that?

A: It’s simple. Our standard of living depends on the amount of goods and services we produce. And, it is an economic fact of life that there are only two ways to produce more goods. You either have more people working more hours or you increase the value of goods and services produced per hour worked. Those are the only two sources of growth.



Q: So, for the economy to grow we need more people working and they need to make more stuff?

A: Right. Now, here is the challenge. Minnesota’s work force is not going to grow very much between now and 2030. Baby-boomers are going to start retiring, and the number of Minnesotans reaching working age over the next two decades will not be sufficient to replace them. The number continuing to work beyond normal retirement age will increase and we expect some further migration to the state. But even after factoring that in, growth in the work force will be slower than we have seen in the past 40 or 50 years. Slow workforce growth makes productivity increases even more crucial.



Q: But don’t productivity increases eliminate jobs as bigger, faster machines allow one worker to do what two used to do?

A: Most people think that making things at a lower cost is what productivity means, but that’s not where the future is. There are plenty of places in the world where cheap labor allows companies to make things at a lower cost. We are not going to be able to compete with them. In fact, we probably do not even want to. The key to our future is the productivity that comes about from making things better and making better things. When we do that the items we produce are more valuable and others will pay more for them. Higher quality and innovative, new products — those are the real sources of future economic growth.



Q: So how do we get there, what do we need to do.

A: First, we need to recognize that bigger, faster machines are not the only source of productivity. We can increase productivity by investing in human capital. A well educated worker is a more productive worker, and the processes and equipment required to produce higher quality products and higher valued products into the future will require a workforce that is even more technically sophisticated than we have today. Minnesota’s well-educated, high quality workforce has been our competitive advantage for nearly half a century. It would be foolish to let that slip at a time when the global economy is becoming even more competitive.

We also need to better appreciate the importance of research in increasing productivity. Research is a key contributor to the development of the new innovative products needed for future growth. It also is a source of the new processes that lead to higher quality products.



Q: How are we doing on investing in human capital and R&D?

A: We should be doing better. Right now, the educational attainment of the Minnesota workforce compares favorably with that elsewhere in the world. But, we are slipping and those elsewhere are improving. Even though we are a leader in high school graduation rates, a smaller proportion of our youth receive a diploma than in the past. And, of course, a high school diploma is unlikely to be enough to compete successfully in the global economy, even one from a school where standards have been beefed up. Clearly we have got to do a better job of educating our youth. Education is the key to productivity.



Q: What about research?

A: According to a recent U of M study, Minnesota is also falling behind in academic R&D activity. It’s not that we haven’t increased our spending. We have. But research spending in other states has grown faster than here, and many states have passed us by. In 2004 Minnesota ranked 40th in academic research spending after adjusting for population size. Thirty years earlier we ranked 20th. We need to correct this and we need to correct it soon.



Q: Will we do what is necessary?

A: I think so. Minnesota’s private and public sector leaders made wise choices in the 1950s building the foundation for the remarkable economic growth we have experienced in the past half century. Now it’s our generation’s turn to make those wise investments.



Tom Stinson is a professor at the University of Minnesota since 1973.

He has been the Minnesota State Economist for the past 20 years under governors from three different political parties.

Current research includes evaluations of alternative strategies for nonmetropolitan development and estimates of the impact of taxes on individual decisions.

tstinson@umn.edu