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The Journal Gazette

  • Blakeman

Wednesday, August 07, 2019 1:00 am

Editorial

Overreliance on manufacturing

Work needed to diversify state's economy

at a glance

Bloomberg's new Economic Diversity Index ranks Pennsylvania first for the nation's most diverse state economy, while Delaware is ranked 50th. Here's how Indiana compares with neighboring states:

Indiana 49th

Illinois 12th

Kentucky 36th

Michigan 37th

Ohio 22nd

Monday's announcement of 170 new jobs at Guardian Machine Protection is good news for Fort Wayne and Indiana. The state offered tax credits to secure the deal, and the Fort Wayne City Council will consider tax phase-ins on real estate and business equipment investments. Indiana's manufacturing sector has flourished following the state's tax-incentives formula.

But there's a downside to the state claiming more manufacturing jobs per capita than any other state. Even Gov. Eric Holcomb acknowledges the state's reliance on that one sector is its Achilles' heel, making it vulnerable to job loss from automation and economic downturn. While celebrating the state's success in job creation, elected officials and economic development professionals need to revise the incentives blueprint and take a long-term approach to creating a more diverse economy.

Indiana's weak spot is made strikingly clear in Bloomberg's new Economic Diversity Index, where the state emerged with the second least-diverse economy in the nation. Delaware's economy is the least diverse, but it rests heavily on the finance sector, with a preponderance of degree-level jobs less vulnerable to economic downturns.

“Manufacturing was supreme in 16 states, with Indiana's proportion highest at 28% (of the Gross Domestic Product), making the state most dependent on production at factories and plants,” according to Bloomberg's Lee J. Miller and Wei Lu. “Meanwhile, the Hoosier state had the smallest portion of GDP from government (9%) and second-lowest from real estate (9.7%).”

By contrast, Pennsylvania's economy – the most diverse in the nation – is divided among real estate (12.2%), manufacturing (11.9%) and health care (9.9%). The real estate sector includes any activity related to the sale and purchase of real estate, including rentals and leasing.

“A diverse economy can help build resiliency against market fluctuations and trade vagaries, whether global or domestic,” write Miller and Lu. “The index can be an indicator of which states – and their workers and government tax coffers – are best insulated from (or exposed to) sudden swings in a single industry, company or even aggregate demand.”

Rachel Blakeman, director of the Community Research Institute at Purdue University Fort Wayne, pointed out that Indiana's heavy reliance on manufacturing is unique even for the Midwest. Neighboring states all rank higher on the Bloomberg index. Ohio ranks 22nd, above both California and New York.

“Ohio, either by luck or strategy – probably a bit of both – has managed to keep more eggs in more baskets,” she said. “There's a pretty significant diversity of the American economy overall. Except for us, with manufacturing at 28%.”

Blakeman said there's a pressing need for Indiana to diversify its economy, but no meaningful policy response from educators, elected officials and economic development professionals.

“What I fear is we are setting ourselves up to being the mining towns of Appalachia 30 years from now, where you've got a lot of folks who are very accustomed to having high-paying jobs but are relatively low-skilled workers when you look at their level of training and education and aren't equipped to transition into the jobs of today,” she said.

A diversified economy will require hard work, according to Blakeman.

“You probably are not going to make friends in the process. Some people are going to feel they are getting the short shrift,” she said. “But you need to have strategy and be thinking about it.”