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La Follette Policy Report La Follette Policy Report ROBERT M. LA FOLLETTE SCHOOL OF PUBLIC AFFAIRS VOLUME 12, NUMBER 2, FALL–WINTER 2001–02 DIRECTOR’S PERSPECTIVE Economic Development: The Role of The events of September 11 deeply affected all of us at State and Local Government in Wisconsin La Follette as they did every- one. Faculty, staff, and students by Stephen Malpezzi gathered quickly around televi- sions that morning, standing in Professor Malpezzi is an associate professor and Wangard Faculty Scholar in the Department stunned silence as events un- of Real Estate and Urban Land Economics of the School of Business, as well as an associate folded. Our collective grief and member of the Department of Urban and Regional Planning, of the University of Wisconsin– dismay grew throughout that Madison. The following article is based on a study the author prepared for the Governor’s day and in the ensuing weeks. Blue-Ribbon Commission on State and Local Government Partnerships, chaired by Professor A standing-room-only im- Donald Kettl (see www.lafollette.wisc.edu/reform). References, acknowledgments, and support- promptu seminar took place ing data are available from the author at [email protected]. soon after the tragedy, in which students, faculty, and staff— with a wide range of interna- he recent softening of the U.S. and fits, economic development. Economic tional expertise and experi- TWisconsin economies, preceding development, broadly and appropriately ence—shared their thoughts but exacerbated by the economic fall- construed, translates into improved and concerns, insights and un- out from September’s terrorist attacks, standards of living and well-being for derstanding. has focused some of our attention from our citizens. Economic development Our faculty were called events unfolding in Southwestern Asia also generates the resources—fiscal and upon frequently by the media, to the economy, both globally and close human—that state and local govern - and as difficult as it was to to home. Here in Wisconsin we have ments need to do their job. make any sense of the tragedy, concluded a two-day Economic Sum- they rose to the occasion ad- mit, sponsored by the University of Wisconsin’s Recent Economic mirably. In this issue of the Wisconsin System, wherein a thousand Performance in Perspective La Follette Policy Report, Don business people, academics, and public officials began to sketch out a “road Wisconsin’s population grew more or continued on page 19 map” for the state’s future economic less steadily over the past thirty years, growth and development. from about 4.4 million in 1969 to about Deeply embedded in Wisconsin’s sys- 5.3 million today. This growth is a little IN THIS ISSUE tem of governance is a partnership be- over half the national average popula - tween state and local units of govern- tion growth over the period. Wiscon - Economic Development, 1 ment. Heavy mutual reliance upon real sin’s employment also grew more or Wisconsin Ideas, 5 estate, income, and sales taxes requires less steadily over the past thirty years, a high level of commitment to commu- from about 1.9 million to about 3.3 mil- School Performance and nication and coordination between the lion jobs. This growth is also just Housing Values, 9 state and its partners in local govern- slightly below the national perfor- Youth Violence Seminar, ment. At the most basic level, the citi- mance over the period. In 1969, Wis- 20 zens of Wisconsin, the common con- consin’s income per capita was about $14,400, compared with $14,800 for Terrorism and Public stituents of all units of government, are the United States as a whole (in today’s Administration, 23 the members of a social partnership that aims to deliver, among other bene- dollars). Over the next thirty years, Wisconsin’s real per capita income grew at about 2.2 per- computers, and so on) matters, although in the long run cent per annum to about $27,300, while the United States it is perhaps human capital that matters the most. Lo- as a whole grew at a rate of 2.3 percent to about $29,600. cational advantages, such as a clean environment and For both the nation and Wisconsin, incomes per capita strong amenities, make a difference. Regions that have roughly doubled over the period. well functioning cities and strong In Wisconsin, as in the United economic and transport links be- States as a whole, real incomes Despite our public “cheesehead” tween cities and nearby rural ar- were stagnant for households in eas tend to prosper. All of Wis- the bottom of the income distrib- image, Wisconsin is best consin is affected by the fact that ution, while the fastest household characterized as a leading our largest city, Milwaukee, is income growth was at the top of somewhat smaller and less dy- the distribution. Broadly speak- manufacturing state. namic than nearby Chicago or ing, over the past three decades even Minneapolis. the gap between rich and poor has been growing. Nationwide, there are modest relationships between Growth and income distribution, however, are not nec- the structure of a region’s economy and its growth pat- essarily at odds. As we will see below, it turns out that terns. The most careful studies show “high tech” regions metropolitan areas that grow fastest generally have the grow only slightly faster on average than “low tech” re- fastest growth in incomes at the bottom of the income gions. But that does not deny the fact that high tech de- distribution. velopment can be critical to regions that have a compar- ative advantage in such activities. With a world-class Why Do Regions Grow? research university inside its borders, Wisconsin is in such a situation. Furthermore, as La Follette’s Don Many of the findings regarding the reasons for eco- Nichols has demonstrated, many industries usually nomic growth and development are hardly surprising. thought of as low tech and “Old Economy,” like metal For example, physical capital (machines, real estate, bashing or trucking, have been radically transformed by the application of technology. Certainly technology has THE ROBERT M. LA FOLLETTE been and will continue to be an important driver of de- SCHOOL OF PUBLIC AFFAIRS University of Wisconsin–Madison velopment. But we should not turn our legitimate inter- 1225 Observatory Drive est in technology into a fetish. For example, biotechnol- Madison, WI 53706 (608) 262-3581 ogy will likely be an important stimulus in parts of FAX: (608) 265-3233 southeastern Wisconsin in the near future. But we E-mail: [email protected] Web: www.lafollette.wisc.edu should recognize that some parts of the state might need to focus on quite different comparative advantages, in- Staff John Witte, Director cluding relatively low-tech activities such as tourism. Graham Wilson, Associate Director Agriculture continues to play a role in Wisconsin’s econ- Craig Allan, Information Systems Manager Joanne Chapin, Student Services Coordinator omy, but as in most other states, a fairly small one in the Joyce Collins, Department Administrator aggregate. Despite our public “cheesehead” image, Wis- Alice Honeywell, Publications Director La’Tanya Moore, Receptionist consin is best characterized as a leading manufacturing Karolina Nitecka, Career Placement Adviser state. Terry Shelton, Outreach Director Shirley Smith, Outreach Specialist The role of a region’s culture is important, but it also Mary Woodward, Outreach Specialist is difficult to measure and analyze. Wisconsin benefits Centers of the La Follette School from a strong work ethic and high standards of public Center for Research on the Wisconsin Economy probity, the latter partly a consequence of our Progres- Center for Wisconsin State, Local, and Tribal Governance sive tradition. Some would argue, however, that we are The La Follette School has a cooperative relationship with less entrepreneurially minded than some other parts of The Center for Resource Policy Studies and Programs The Industrial Relations Research Institute the country. The Institute for Environmental Studies The Institute for Research on Poverty The International Institute Who Benefits from Economic Growth and How? The Wisconsin Center for Education Research The La Follette Policy Report is a semiannual publication of the Robert M. La Follette Despite the common perception that fast growth comes School of Public Affairs. The School is a nonpartisan teaching and research at the expense of a more equitable distribution of in- department of the University of Wisconsin–Madison. The School takes no stand on policy issues; opinions expressed in these pages reflect the views come, careful recent studies by the Upjohn Institute’s of individual researchers and authors. Timothy Bartik and the University of Pennsylvania’s This issue of the La Follette Policy Report is edited and produced by Alicia Sidman Walley. Janice Madden have demonstrated that metropolitan areas that grow faster also tend to see the largest gains © 2002 Board of Regents of the University of Wisconsin System and the Robert M. La Follette School of Public Affairs. at the bottom of the income distribution. The best ex- planation for the positive long-run relationship be- tween regional income growth and an improved distri- 2 La Follette Policy Report bution of income is the “hysteresis” model of labor mar- ments may be negative. These studies often suggest that kets. Put simply, hysteresis models are ones in which increases in local taxes collected will be exceeded by lo - history matters: people aren’t simply identical “labor cal expenditures on schools and other services. It is not units” entering and leaving the labor force. In rapidly clear, however, that these studies are correct, because growing areas, there is more opportunity for increased they utilize incomplete accounting methods. labor force participation by people who may not have Broadly speaking, communities grow because popu- been in the labor market before.
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