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WisBusiness: Economist Knetter warns partisan politics will stall recovery; favors UW-Madison split
2/23/2011

By Kay Nolan
For WisBusiness.com

Milwaukee -- Former UW-Madison Business School dean Michael Knetter railed Tuesday against partisan politics, saying the rancor and uncertainty endangers the nation's economic recovery.

Knetter said it's harder than in the past to predict how the economy will recover because of contentious politics and what he calls "policy uncertainty."

Recent elections have changed political leadership across the country, but it's not yet known how that will affect business regulation, he told about 170 members of the Milwaukee Rotary Club. The balance appears to have shifted toward politicians who are pledging fiscal restraint, but what will actually happen is unknown, Knetter warned.

"While the voters render a verdict as to the direction they'd like to see policy take, there's still a lot of continued uncertainty as to how this will play out, in terms of what sorts of regulation we're going to get, what sort of tax policy, what sort of fiscal policy, what kind of long-term deficit repair we're going to see," he said.

Knetter added, "The biggest danger to our country is how partisan we have become. I find it rare when you see people from different sides of the political spectrum actually getting together."

The one-time economic adviser to former presidents George H. W. Bush and Bill Clinton predicts a fairly stagnant economy for 2011. He forecasts an estimated 3.5 percent growth in GDP (compared with last year's 3 percent growth), an "average" year for the stock market, with a predicted 7 percent growth in 2011 (much lower than 2010's stock market growth of about 19 percent) and continued high unemployment that may or may not dip below the current 9 percent.

Employment will continue to be a struggle, Knetter predicted, because many of the jobs lost in recent years were related to the construction industry amid the housing slump. Potential job openings in other industries are unlikely to be a good fit for those displaced workers, he said.

After the Rotary luncheon, Knetter told WisBusiness the recent political turmoil in Madison over Walker's budget repair bill is an apt example of problems rooted in excessive partisanship.

"Right now, it's a political football, and it just distracts everyone from the real mission of the university," he said. "So now, all the energy is about maneuvering and not about running our business, which is teaching kids, doing research and winning grants. It's too bad."

Regarding proposed cuts in pay and benefits to state workers, Knetter said, "I don't know how one goes about balancing the state of Wisconsin budget without cutting something for public sector employees. I mean, what the hell, that's what the state spends money on. It doesn't spend money on anything but people, really. So what are you going to do, you know? Lay them off or cut their pay -- pick your poison."

But Knetter also said that increasing tuition at UW-Madison for students who can afford it would help make up for the reduced taxpayer revenue, ultimately putting a larger share of the university's costs on the people who benefit directly from studying there. UW-Madison graduates have consistently done very well in the workforce, he noted.

In Wisconsin, he said one of the best outcomes of an expected split between UW-Madison and other UW System campuses would be bipartisan governance -- a concept that is uniting "strange bedfellows" Scott Walker and UW Chancellor Biddy Martin.

The UW plan is expected to be part of Gov. Scott Walker's yet-to-be-introduced budget bill.

Knetter, who is currently president and CEO of the UW Foundation, said the unlikely alliance of Walker and Martin in support of the split "just shows that perhaps this is not a partisan issue."

"When I think about Scott Walker, certain things come to mind, and when I think about Biddy Martin, certain other things come to mind," Knetter said. "These people are strange bedfellows. Whenever you see two people like that coming to agreement on something, we all ought to step back and say, 'Huh? How did that happen?' I know them both enough to say they're probably of different political persuasions. So when two people like that agree on something, I usually think, well, one of them must be a sucker -- or -- maybe this isn't really a partisan issue. And I don't either of them is a sucker."

Knetter said it makes sense for UW-Madison to be able to have more autonomy to raise revenue -- by increasing tuition, streamlining expenses and seeking philanthropic donations -- apart from the UW System's smaller campuses. He said the university in an awkward position because the new governor is from one political party, whereas the university's board of regents has appointees from the former party in power.

"UW-Madison brings in $1.2 billion in out-of-state revenue every year," Knetter said. "We are a huge net job creator. It's time to recognize that this needs to be managed with a board that's bipartisan, has more stability, and doesn't change over every time there's an election."

Knetter recommended that Wisconsin vary its economic strategy in different areas of the state, and to fight for tourism dollars from Chicago and Minnesota residents.

He also called on Wisconsin and the nation to be more accepting of immigration, which will reduce the risk of a future demographic shift in which there will be many more dependents on Social Security than workers able to support them.

"We have about 35 people per square kilometer in America," he said. "We have a lot of room in our country to accommodate growth in our labor force."
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