Louis johnston red group talk 06 22-2010
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Transcript of Louis johnston red group talk 06 22-2010
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How Can Minnesota Stay Above Average?
Louis D. Johnston
Presentation at theRegional Economic Development (RED) Group Forum
“Designing the Future: What's the Next Minnesota Going to Look Like”
June 23, 2010
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Nobel Laureate, 1976
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Nobel Laureate, 1982
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Close friends
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''Milton's out to save the world and I'm out to understand it.''
George Stigler
NY Times, October 21, 1982
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Quick overview:
• Economic growth in Minnesota since World War II: The data
• Economic theory: The sources of economic growth
• Economic policy: what role for policy in promoting and sustaining economic growth?
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Economic growth in Minnesota since World War II: The data
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0.60
0.70
0.80
0.90
1.00
1.10
1.20
Rel
ativ
e to
U.S
. ave
rage
Year
Income per person: by region, relative to the U.S. average
Minnesota
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0.60
0.70
0.80
0.90
1.00
1.10
1.20
Rel
ativ
e to
U.S
. ave
rage
Year
Income per person: by region, relative to the U.S. average
Minnesota
Great Lakes
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0.60
0.70
0.80
0.90
1.00
1.10
1.20
Rel
ativ
e to
U.S
. ave
rage
Year
Income per person: by region, relative to the U.S. average
Minnesota
Great Lakes
Plains
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Economic theory:Output per person (Per capita income)
output per person = participation rate · output per worker
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Growth of participation
rate
Growth of output per
worker
Growth of per capita income
Economic theory:Growth of per capita income
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Economic theory:Growth of output per worker
Growth of resources
per worker
Growth of total factor productivity
Growth of output per
worker
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Growth of participation
rate
Growth of resources per
worker
Growth of total factor productivity
Growth of per capita
income
Economic theory:Growth of per capita income
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Economic theory:Two types of growth
• Catch-up growth• Endogenous growth
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Economic theory:Catch-up growth
Total factor productivity is lower than other
areas
Total factor productivity can be increased by adopting institutions
and technologies from leading areas
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Rapid growth of participation rate
Rapid growth of resources per worker
Adoption and improvement of
existing institutions and technologies
Growth of per capita
income
Economic theory:Catch-up growth
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Minnesota, 1950s through 2000s:Catch-up growth
• Higher-than-average growth in participation rate- Married women with children- Young people from surrounding
states
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Minnesota, 1950s through 2000s: Catch-up growth
• Higher-than-average growth inresources per worker Human capital Physical capital
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Minnesota, 1950s through 2000s: Catch-up growth
• Increases in human capital Education: grew faster than national
averageoHigh school graduation rates roseoRates of post-secondary education
attendance rose
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Minnesota, 1950s through 2000s:Catch-up growth
• Increases in human capital HealthoPublic health (vaccination rates,
infant and maternal mortality)oMedical care (including dentistry)
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Minnesota, 1950s through 2000s:Catch-up growth
• Increases in physical capital Private capitaloBroad and deep local financial
markets and institutionsoHigh rates of return attract out-of-
state capital investment
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Minnesota, 1950s through 2000s:Catch-up growth
• Increases in physical capital Public capitaloTransportation (roads, river
transport)oWater and sewer systems
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Minnesota, 1950s through 2000s:Catch-up growth
• Adoption and improvement of existingtechnologies Computers Medical devices
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Minnesota, 1950s through 2000s:Catch-up growth
• Government effort to make Minnesota “big league” Human rights efforts Public amenities
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Economic theory:Endogenous growth
• Total factor productivity growth is driving factor
• Endogenous: total factor productivity comes from intentional application of resources towards innovation
• Participation and resources per worker grow relatively slowly
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Economic theory:Endogenous growth
Total factor productivity is higher than almost all
other areas
Total factor productivity must be increased by new innovations and
improved input quality
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Slow of growth of participation rate
Slow growth of resources per
worker
New innovations and improved input quality
Growth of per capita
income
Economic theory:Endogenous growth
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Minnesota, 2010 onward
• Participation rates have stabilized• Quantities of human capital and
physical capital are growing more slowly
• Innovation has picked up• Medical devices• Retailing
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Minnesota, 2010 onward
• Growth depends on increasing total factor productivity through improved quality of inputs, not just quantities
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Minnesota, 2010 onward
• EducationoEarly-childhood educationo Improved graduation rates for non-
white studentsoLifelong learning
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Minnesota, 2010 onward
• HealthoFor young: preventionoFor adults: wellnessoFor older adults: ability to treat
illness outside of hospitals and nursing homes
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Minnesota, 2010 onward
• Public capital and governmentoBetter transportation, not just moreo Improve productivity of water and
sewer systemsoGovernment services: competition
and community
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How Minnesota Became Above Average
1950s-2000s (Catch-up growth)
• Growth in quantity of resources
• Adoption and improvement of existing institutions and technologies from the technological frontier
2010 onward(Endogenous growth)
• Growth in quality of resources
• Development of newinstitutions and technologies that expand the technological frontier
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The big questions for public policy:
Do people follow jobs?or
Do jobs follow people?
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How Minnesota Became Above Average
1950s-2000s(People follow jobs)
• Public policy focus: – Accumulate and attract
more human and physical capital
– Technology transfer
2010 onward(Jobs follow people)
• Public policy focus:– Improve quality of
human and physical capital
– Technological innovation
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Thanks for your attention and participation!
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Questions?