Hicks
Recently, I was asked what the differences are in economic policy for places that are growing, and those in decline. There’s a fair amount of research on the issue, some of which I’ve authored. I’ll try to summarize and focus on the main differences and similarities.
The first matter is to recognize that this isn’t an academic exercise. Most of Indiana, and indeed most of the Midwest, is in economic decline. The next round of demographic forecasts will be out soon. They’ll project a declining population through 2060 in more than 50 Hoosier counties. A dozen counties will be projected to grow faster than the nation through 2060. The remaining 30 or so will be projected to grow more slowly than the national rate—a pattern known as relative decline. Indiana and the Midwest will still be prosperous, in a global sense. But, relative to most of the nation, the coming decades will see us slipping farther away from the nation.
Tolstoy’s famous line, “Happy families are all alike; every unhappy family is unhappy in its own way,” is probably the best way to think about regional growth and decline in counties. Growing places almost always have most of the same positive attributes. Their schools are good and attractive to families, they are safe, their residents are better educated than average, and they have growing housing stock with good public infrastructure. Growing places enjoy recreational options, both private and public. And, there are few barriers to employment or starting a business, such as restrictive occupational licensing or heavy regulatory burdens.
Places in decline lack one or more of these characteristics. Indeed, most shrinking places in the Midwest lack most of these attributes. The Midwest came of age at a time when natural amenities and recreational opportunities played only a modest role in prosperity or migration. Our infrastructure is aged, and few places have schools that are good enough to act as magnets for mobile families. Our legacy of heavy industry built many of our cities, but it also left many communities to deal with pollution, excess housing stock and rust.
This will sound familiar to many readers, but we all have a familiarity bias in assessing our own communities. I continue to be amazed at the number of educated folks who live in places that have been shrinking for four, five or six decades yet remain wholly unknowing of those facts. So, the first big challenge of places facing economic decline is to recognize that truth. Cities and counties that are shrinking need to confront facts about themselves before they can make any progress.
American cities are young, and the economic reasons for a Toledo, Muncie or Peoria are different today than a century ago. Acknowledging that fact is often harder than admitting economic decline. Too many places are trying to resurrect the economy of 1978 rather than figuring out what the economy of 2028 will look like. Change is hard and slow, requiring strategic patience.
Declining places have few good options, but they are worthwhile and will, in most places, yield better prosperity. In terms of major, long-term prospects, the only thing that will turn places around is to attract more people, or at least end population decline. During times of fast population growth, that is not a zero sum game. With declining birth rates, aging baby-boomers and slowing immigration, the hunt for people will be a race for economic survival.
It is important to know that business attraction won’t really play any part of economic resurgence in the Midwest. There’s nothing inherently wrong about business attraction efforts. But, no matter how successful a community is at luring new factories and warehouses, unless you can attract their highly paid workers to your town, it will have no lasting effect. If your business attraction efforts make your community less desirable for people, it will actually weaken your local economy. It is a costly business with inherent risks.
In the post-COVID world, people are increasingly mobile, making business attraction less important. Here there is some new policies. Some places are trying to attract remote workers through financial incentives. It is possible someone will figure out a magic incentive. However, the evidence I’ve seen suggests that fundamental conditions such as good schools, safe neighborhoods and recreational opportunities trump financial incentives every time.
As cities or towns shrink, they necessarily lose their most mobile residents. This typically means loss of income from workers and their families. In most states this also means a decline in school funding, and other state transfers. This can seem much like a downward spiral, but there are forces that work against this.
A declining and aging population means the source of income shifts from work to retirement savings and government ‘transfers.’ These transfer payments are Social Security, Medicare, Medicaid, and related programs. Though these programs pay less than labor income, they are more stable and predictable. They provide a floor beneath which most communities won’t slip below.
Declining places also have housing problems, but they differ from growing places. Housing is a durable investment, and homes remain long after they are vacated. Places that lose population keep their houses, which depresses the price of homes, typically below the cost of building new ones. This is the real housing problem across the Midwest, where population decline effectively prevents the construction of new speculative homes.
This fact sets up the basis for renewal that all communities in decline will have to confront. The main reason today that people aren’t moving to any particular city is that they don’t wish to live there. The primary reason people don’t wish to live in a place is that it doesn’t have the neighborhoods they want. The reasons for not moving to a place are as varied as human interests. But, for the median family, the common factors are that schools aren’t sufficiently good, crime is too high or infrastructure is too decayed.
All of the problems that keep people from a city—blight, crime, school quality, and infrastructure—are problems of local government. Local public services are now the driving force of household location decisions and have been for a generation or longer. For shrinking places, this points to an obvious priority. All growing places are alike. Declining places are doing so for very different causes. But, the key that holds them all together is effective local government services. Therefore, a focus on improving schools, removing blight, reducing crime and paving streets will be the economic development strategy of the 21st century.
Michael J. Hicks is the director of the Center for Business and Economic Research and the George and Frances Ball Distinguished Professor of Economics in the Miller College of Business at Ball State University. Send comments to [email protected].
