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How to create jobs; It takes more than rhetoric, and much more than just cutting taxes and red tape
10/8/2004

*This article appeared in the Oct. 8 issue of Madison's Isthmus newspaper

By Erik Gunn

Karen Borley lost her job selling office products this summer, the victim of cutbacks by her employer. Now looking for new work, the 53-year-old east-side Madison resident strives to stay upbeat and disciplined in her search.

But it hasn’t been easy. The job classified sections in newspapers seem slimmer, she says. Are there a lot of jobs out there? “It doesn’t seem like it,” says Borley. “This has affected a lot of people: layoffs and downsizing, bottom-line decisions.” She’d like to hear more political debate on the subject.

In fact, candidates across the political spectrum — John Kerry, George Bush, Russ Feingold, all of the Republicans who vied for the right to challenge him in November, including victor Tim Michels, and virtually every other candidate for state and federal office — have repeatedly touted their proposals as the keys to job creation. The topic is on all of their Web sites, and is a staple of all of their speeches.

Jobs are the issue of the moment, as might be expected, given that the U.S. has seen a net loss of more than a million of them during the Bush presidency. And while there are signs that the unemployment rate is declining (a seasonally adjusted 4.7% in Wisconsin in July, down from 5.8% a year earlier), critics says the jobs being added are less desirable than the ones being lost.

“Newly created jobs in Wisconsin, just like everywhere else in the country, pay less than the jobs that are disappearing,” says Jim Cavanaugh, head of the Madison-based South Central Federation of Labor. “Particularly in the area of manufacturing, which has always been the base of Wisconsin’s decent jobs, the trend in the last couple of decades has been very clear.”

Wisconsin has lost more than 75,000 manufacturing jobs since March 2001. And new manufacturing enterprises — indeed, new employers in general — are generally smaller than their predecessors and less likely to be unionized.

Both the UW Center on Wisconsin Strategies and the Economic Policy Institute, a Washington think tank with ties to unions, have examined state and federal payroll data and reached the same conclusions. They found that the industries gaining jobs in Wisconsin from November 2001 to 2003 paid an average annual salary of $31,343, according to COWS and EPI, while the industries losing jobs in that same period paid an average of $38,553 a year. And just under half of the growing industries offered health benefits, compared to nearly three-fourths of those losing jobs.

“The U.S. is pretty much on a down escalator for a very large number of people,” says COWS director Joel Rogers. “That’s certainly the case in Wisconsin. Since 1979, there’s been a 25% to 30% improvement in productivity. Yet the average hourly wage is 89 cents higher. That’s about four cents a year — that’s pretty flat.”

The half-empty glass that Joel Rogers sees is, in Mark Bugher’s eyes, arguably half full. Bugher, the former state revenue secretary who now heads the University Research Park, an entrepreneurial incubator for high-tech firms, says Wisconsin has “managed to avoid, or at least partially avoid, some of the paralyzing loss of manufacturing jobs that many of the Midwestern states have experienced. We’ve lost jobs, but not as dramatically. We get good marks for job retention.”

Job retention isn’t the same as job creation, however. And like Rogers, Bugher says policymakers need to pay more attention to the kinds of jobs the state attracts: “We need to work more on improving the quality of jobs in Wisconsin so that we increase per-capita income. Jobs just for jobs’ sake is not the appropriate strategy.”

Bugher is even willing to take a critical look at a traditional sacred state industry: “One could argue that the [financial] return per job in tourism isn’t what it is in, say, biotechnology,” he says. “I think we have to start getting strategic and aggressively going after jobs being created.”

The Research Park, says Bugher, is succeeding in creating the sorts of jobs Wisconsin needs. With 4,000 employees and firms whose collective payroll tops $240 million a year, the average park employee earns $60,000 — which reflects both six-figure executives and $35,000 technicians.

One success story is Platypus Technologies, a Research Park tenant that produces nanotechnology products. Carla Volkmann, an organic chemist, joined the company two years ago as its 10th employee. Her main duties are to develop the chemistry that undergirds a variety of agents to detect viruses and disease, and she doubles as the purchasing agent for the now 20-employee start-up firm.

Volkmann, who holds a master’s degree from Michigan Technological University in the Upper Peninsula, had little trouble finding work. “There’s so many different companies in the Madison area in biotech and whatnot,” she says. “Especially for a person in the sciences, there’s a great number of jobs that are available.”

How can Wisconsin replicate such successes and create new, well-paying jobs?

Tom Still, director of the Wisconsin Technology Council, argues that the state’s major players — government, private investors, business and education — need to think differently and pursue a common strategy.

“It’s taken awhile for those units of government to make the switch from thinking about Wisconsin’s economy as it was in the past as opposed to how Wisconsin’s economy should look in the future,” says Still, formerly associate editor at the Wisconsin State Journal. “A lot of the strategies were geared to a bit of smokestack chasing. [Policymakers] wistfully believed that lost manufacturing jobs would come back if only we worked harder at it, and there was a lack of regional and state vision.”

The result was internecine warfare throughout the state. “Stevens Point would figure they could get ahead by out-competing Wisconsin Rapids or Wausau,” says Still. “In reality, that’s not the world we live in anymore. Our competitors are national and international. The new model involves regions within the state trying to leverage what they have, not so much in competition with other regions in the state, but in competition with sectors that may exist nationally or internationally.”

The very nature of jobs is changing as well, Still notes. In the past, economies have been built by spending on things — the literal machinery of industry that in turn was used to make other things. That era is passing. “The model of economies that were built on capital expenditures on manufacturing is being displaced in part by the model of a knowledge-based economy, where investments in people and what they know and the skills they have is something that doesn’t depreciate — it only grows.”

While he believes Wisconsin is “coming to grips with this new model,” Still is not satisfied with the pace of change. The higher-than-average share of state jobs in manufacturing, and the state’s success in the past in regaining manufacturing jobs, left Wisconsin complacent, he contends. “A lot of people, for a long time, were saying, ‘Why change?’”

Rogers agrees that Wisconsin needs to change, and drastically. But the state, he contends, shouldn’t write off manufacturing. Far from it.

“For all the talk of the new economy and for all the undeniable promise of new industries, biotech or computer-assisted health-care diagnostics or any number of cool new things,” he says, “and despite the fact that the economy is significantly more knowledge-intensive than it was 30 or 40 years ago, manufacturing remains the anchor, the lodestar, for good jobs for a very large number of people in Wisconsin.”

Rogers says manufacturing jobs are particularly for the non-college-educated people who compose “the clear majority of the Wisconsin workforce.” As he puts it, “If you don’t have a BA or a BS, and you’re in Wisconsin and you’re making some decent money, chances are pretty high that you’re in construction or manufacturing.”

And while Still touts entrepreneurship as key to creating future jobs, Rogers is doubtful. Entrepreneurial activity is important, he acknowledges, but the people losing jobs — like middle-aged, male factory workers — aren’t the ones starting new companies. And startups are risky and operate largely on the margins. “The number of people who actually do that and succeed is very small. Most new companies fail.”

With such varying views of what the problem is, it may be surprising how much agreement there is when it comes to identifying solutions.

In the Legislature and among business lobbyists, the focus tends to be on taxes and regulation. The so-called Job Creation Act is almost entirely about easing regulation, and the Legislature is fixated on schemes like the Taxpayer Bill of Rights, a constitutional amendment to restrict local spending.

But Rogers, Bugher and Still all contend these factors aren’t at the top of the list for real business leaders looking to create real jobs.

“I won’t pretend for a second that taxes aren’t important, because if you have below-average incomes, it’s not sustainable to have above-average taxes,” says Still. “But the notion that we’re going to solve all our business problems by simply reducing taxes just isn’t true.

“Human capital is more important. Investment capital is more important. Infrastructure — and by that I include telecommunications, the energy system, the road system and other modes of transportation, air connections and perhaps high-speed rail — those are the things I hear about from people in high-tech businesses more than I do about taxes.”

Rogers goes further. “Most people in Wisconsin,” he says, “actually think we’re this exceptionally high-taxed state, with government bloated and growing rapidly out of control.” Yet, Wisconsin is in the middle among states when tax revenue is measured as a share of income, and well down the list in business taxes as a share of profits.

“It’s true that taxes here relative to other states tend to be high. But that’s because historically we don’t like paying fees for things,” says Rogers. “And that’s very Wisconsin-like. We wanted the working man to be able to take his children to the state park on the weekend without having to pay a fee for it.”

Taxes are important, agrees Bugher, but the issue is as much or more how they’re levied and distributed. The real goal, he says, should be “reforming our tax system, which includes balancing the way we pay for both higher education and K-12 education in Wisconsin.” He calls for shifting the burden from property taxes to “consumption-based taxes that are applied to goods and services, like the sales tax.”

This is a strategy Bugher has long advocated. As a member of Gov. Jim Doyle’s task force on school funding, he authored what has become the group’s consensus plan to shift school funding to the sales tax. It’s an idea he also touted four years ago as a member of another panel assembled by then-Gov. Tommy Thompson.

Yet Bugher notes that drastic budget cuts demanded by current deficits — the UW System alone endured a $250 million cut in the current two-year budget, offset by hiking tuition $150 million — risks undermining the state’s long-term interest in job creation.

“We have to invest aggressively both in technical college education and in higher education in Wisconsin,” he says. “Those are the young people who are going to be the workers of tomorrow. We can’t turn our backs on the training those young people are going to have to have.”

For an example of how Wisconsin could do better, Still looks next door to Minnesota. While the Badger State’s per-capita income is just under $30,000 a year, Gopher State residents earn, on average, 13% more — $33,900, ahead not just of Wisconsin but the nation as a whole. “We’re lagging, they’re ahead,” says Still.

Minnesota exceeds us in other ways. Nearly one in three adults 25 or older has a four-year college degree; in Wisconsin, it’s less than one in four. (The U.S. average figure falls in the middle, at 27.2%.)

“Venture capital investment in Minnesota is five times what it is in Wisconsin,” Still adds. And Minnesota leads Wisconsin in its commitment to keeping higher education strong and encouraging partnerships between government, industry and education. “That’s all starting to happen here, but Minnesota leapt ahead for a while, and they’re still ahead.”

One effort to encourage venture capital in Wisconsin is being spearheaded by the state Department of Financial Institutions, in cooperation with the state Commerce Department. Its goal is to enable would-be investors in new business — principally individual, smaller investors known in the trade as “angels” — to form networks that could make their efforts more effective.

“There’s a direct correlation between amount of money invested in venture capital, private equity and the health of the economy, as measured by per-capita income,” says DFI Secretary Lorrie Keating Heinemann. “What we’re trying to do is go to the base of the pyramid. We want to put a lot of effort in encouraging angel networks to form and collaborate.”

As state policymakers in both the private and the public sectors sort out strategies to encourage job creation, two broad themes emerge.

One is that Wisconsin’s various communities must stop competing with each other. Instead, says Still, the state has to recognize that it is made up of discrete regions, all of which have to work together. Paul Linzmeyer, a Green Bay businessman who chairs the Wisconsin Council on Workforce Investment and sits on Doyle’s Economic Growth Council, says each region has to examine its strengths and weaknesses, developing “a common, shared vision” about how to create “the jobs that we’ll need to have here that are going to be good, high-paying, in-demand jobs that aren’t going to be at risk for outsourcing.”

The other theme is that it’s critical to remember that not all jobs are created equal.

“There are basically two ways you can make a lot of money,” says Rogers. “You can pursue ‘low-road strategies’ that focus on reducing the price of goods or services and undertaking a variety of measures to reduce that price immediately. Those typically begin with the price of labor.”

The result of this approach is a relentless focus on lowering costs, which in the current trade environment tends to ultimately favor low-cost-labor havens like China.

“What low-road competition is associated with, in manufacturing, is declining wages, rising inequality as a result of declining wages, relatively low levels of investment in workers, relatively low levels of investment in new plant and equipment, [and] relatively low rates of growth in productivity,” says Rogers. Plus there are societal costs like health care for uninsured workers and environmental degradation.

“But,” he continues, “there’s another way of doing business: the high road.” These are businesses that still pay attention to labor costs, but they look at markets more holistically. To compete successfully, they pay attention to high performance, emerging demand, and the willingness of customers to pay for quality and innovation.

Either track can feed itself. Focusing on price — like, for instance, Wal-Mart — leads to declining wages and to consumers who are focused singularly on price. It also leads to less investment in worker training. That may help explain a recent Washington Post story about employers who are having a hard time finding skilled workers.

In much the same way, though, the high road, too, can reinforce itself, Rogers says: “As workers make more and more, they’re more and more attentive to performance, and they’re more and more able to pay for performance.”

Gov. Doyle’s “Grow Wisconsin” effort is a start in this direction. It emphasizes education, infrastructure and targeting high-wage jobs. Rogers says the state’s role in this effort is to identify employers already on the high road, ask them what they need, and give them appropriate support — investment in training, for instance. This helps create “a competitive climate in which they’re not going to get undermined constantly by low-end competition.”

But the key to this effort is targeting assistance to good employers — and walking away from bad ones. It also demands investing in community resources such as schools and housing. Says Rogers, “You’re going to be much more concerned about those things than whether you’re paying a marginal extra cent or two in taxes.”

In short, it’s the state’s job “to close off the low road and help pave the high road,” says Rogers. “Make it harder to make money by treating people like roadkill; make it easier to make money treating people with respect.”u



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