The Discussion: State Competitiveness Panel

A distinguished group of panelists representing different disciplines and perspectives examine Minnesota’s supply and demand for talent, the sustainability of our higher tax/higher service approach to competitiveness, and whether placing our chips on the “tech economy” makes sense.   From our 93rd Annual Meeting of Members and Policy Forum.

What does this competitive landscape mean for Minnesota and state policy makers going forward?  Our discussion panel brought scholarly, practitioner and policy perspectives together to offer insights, conclusions and recommendations.  Moderated by Star Tribune business columnist Lee Schafer, our panelists included Shawntera Hardy, entrepreneur and former DEED commissioner; Patrick Meenan, General Partner with the venture capital firm Arthur Ventures; Tim Penny, President and CEO of the Southern Minnesota Initiative Foundation; and Dr. Myles Shaver, Professor, University of Minnesota Carlson School of Management, and author of Headquarters Economy: Managers, Mobility, and Migration.

Schafer began by asking panelists if they saw any areas of concern in regard to losing competitive advantage, or areas where the Minnesota advantage is not as great as we may perceive it to be.  Shaver argued what sets us apart from every other major metropolitan area in this country is how highly educated people move into the region and then stay in the region – our high concentration of highly educated, high earning talent “doesn’t leave.”  However, there have been several indications that our growth is now being constrained by availability of that very talent pool.  The key issue is whether we will continue to attract enough talent into the state while also building that talent within the state to grow at the speed we want to grow.

Building on this idea, Hardy reflected on the fact that many Minnesotans are not participating in this talent development process.  Emphasizing the need for inclusive economic growth, she argued our greatest competitive challenge is ensuring communities of color, individuals with disabilities, and rural communities are part of the talent building, acquisition, and retention theme.  Currently “it’s the difference between being great and good,” but looking forward, she saw a continuing failure to address this need having much more sobering competitive implications.

Penny reflected that some of the seeds of our talent problem can be traced back to earlier decades when we pushed to turn two-year educational institutions into college prep institutions and in many cases lost relevance to the job skills we need in this economy.  As a result, with respect to technical training, “we are way behind the curve and need to catch up.”  He maintained we need to refocus on job needs and also be more adaptable and responsive to the needs of employers.  Building on Hardy’s comments, Penny added that challenges of economic inclusion with respect to talent creation can’t ignore the importance of early childhood education. This is why the Southern Minnesota Initiative Foundation spends $1.5 million per year in this area as a long-term workforce investment.

How do we keep our current workforce shortage problem from becoming a long-term enduring competitiveness problem?  Shaver contended in the pursuit of talent that it’s important to communicate the economic benefits offered by our high tax/high service model.  As one example, he recently asked an audience of business executives from Oklahoma to guess what percentage of their Minnesota peers send their children to public schools.  Guesses ranged from a quarter to a third, whereas Shaver’s research found that number to be 85%.  Benchmarking against the east coast, that translates into $60,000 in savings per year for two kids after taxes.  This type of benefit can often be hidden while our high marginal tax rates are quite visible.  Aside from ensuring benefits and types of returns we expect from tax dollars, he argued, we also must be more effective in communicating them to the world.

Is the talent pool here sufficient to support the start-up and emerging companies so important to state economic growth?  Meenan stated for most part it is - especially at the non-managerial level.  Where his firm struggles, he continued, is with executive level positions for which they may have to hunt for people to come and move to the Twin Cities.  In his experience working with a business-to-business IT company portfolio, nobody has declined because they expressed concern about taxes being too high; these individuals are “typically more focused on growing their top line than managing their bottom line.”  Rather, the decision tree features three main branches: 1) how interesting the company is 2) how progressive is the culture in attracting a diverse workforce and 3) the general economic climate.

With respect to Minnesota’s high tax/high service model, Schafer asked if are we getting the returns we should be expecting right now.  If not, what should we be doing differently?  Hardy argued in the big picture the answer is yes, but the issue of “who” is getting the returns needs more attention.  In addition, she continued, we need to be paying more attention to evaluating outcomes.  More time and effort needs to be spent on understanding just who is being served by our spending, finding out just what is being accomplished, and if it’s not working, “stop doing it.”

Picking up on the idea of “who” is being served with our spending, Penny reflected on his experience in Washington where the lion’s share of federal spending went to people who were retired and served by programs in which costs escalated automatically with no discussion about why or the justification for it.  Meanwhile, everything else -- constituting 15% of federal budget -- was fought over, including critical areas such as spending on children and workforce age adults.  Government’s value proposition, he maintained, is determined by how the money is used, and we typically do not get adequate cost/benefit analysis of tax dollars because “politics drives the decisions instead of logic.”  He cited the recent state debate over how to approach early childhood education as an example of this problem.  The push to put all 4-year-olds into the public school system is an example of an effort where Minnesota would spend 4-6 times more money than targeted early childhood programs and still not solve the problem.

Based on his survey work Shaver commented he thought there was general acceptance of the current “deal” created by Minnesota’s high tax, high service model among Minnesota headquarters talent.  When headquarters respondents were asked what were the worst things about living in Minnesota, the answer was weather and taxes.  Yet when also asked if they had to move what qualities or characteristics would be most important to them in a relocation decision, lower taxes were near the very bottom of the list while the things taxes purchased, like quality schools and good transportation, ranked higher.  It’s clear, he observed, that people intuitively assess this value proposition.  But he cautioned if that return on spending or value proposition declines or “gets out of whack” our primary source of competitive advantage can be jeopardized.  Talent pools have skills which are desired in other places and also have means to move.

Whether it’s considered a state competitive disadvantage or a chronic business management and economic growth problem, both Hardy and Penny communicated that affordable housing and child care join talent access as the topics they come across deserving priority attention.  Penny argued it’s important to be more flexible, adaptable, and collaborative in programs and policies designed to address these issues, as one-size-fits-all solutions do not work.

Are there different competitive challenges in the metro versus rural Minnesota?  Penny noted two major differences, both affecting access to high-end talent.  In rural Minnesota there is not a lot of equity capital dedicated to these regions, so getting new business starts are difficult because businesses locate where the money is.  Amenity differences also make leadership transitions more challenging as it is more difficult to get people to move to rural areas.  Compounding the challenge is the difficulty finding suitable opportunities for spouses.  Shaver noted his research bears this latter concern out.  If you compare the Twin Cities to the 30 biggest metro areas in the country, the highest percentage of dual career couples reside here.  The share of married couples both having college degrees are at all time highs and continue to climb.  As a result, dual career opportunities are becoming an increasingly important talent attraction consideration which enhances the competitive position of the Twin Cities region.

How can Minnesota continue its notable legacy of building and sustaining globally competitive rural based companies?  Meenan said he is a big proponent of regional early stage investment funds which we are seeing more of around the state.  Penny said one critical key is succession planning and keeping leadership local.  He repeated his earlier concern about equity challenges in rural parts of the state.  The Southern Minnesota Initiative created its own small equity fund three years ago knowing it would not fill the gap but hoping to stimulate the attention and creation of other equity groups in the region, which has occurred.

Schafer noted there is a current emphasis within DEED and elsewhere to make Minnesota a bigger player in the tech economy.  Critics have said a push to bolster MN’s tech economy is a low return public investment at best.  Are we late to the party?  Is this a good use and focus of government money to drive a tech economy in our region?

Hardy began by saying “becoming a player in the tech economy” should absolutely not be interpreted as trying to emulate Silicon Valley.  She described a recent trip there featuring an amazing Google campus “surrounded by 1970 Winnebagos owned by engineers who can’t afford housing.”  It’s important, she continued, not to look at technology as “a shiny separate thing,” but rather as an increasingly integral and essential part of our existing industry base.  Our efforts at developing a “tech economy” should focus on weaving tech advancements into all aspect of our existing diverse industry base to make them more productive and competitive.  These types of tech economy initiatives are, in fact, essential.  “We have the nucleus of almost every industry in terms of where it was built and where it can go,” she said.  “Imagine what technology entrepreneurs can do with that foundation to take us to the next level.”  Penny concurred saying this is precisely the way to look at this issue.  For Greater Minnesota’s three predominate industry sectors – agriculture, health care, and manufacturing – it is technological advancements that are positioning us for the future.

Meenan said the two fastest growing private companies in the state of Minnesota – which combined to grow from 30 to 350 employees in just two years – both occupy this intersection of technology and productivity enhancement for major Minnesota industry sectors.  They are building business, hiring lots of young workers, fostering an inclusive culture, “and not complaining about taxes yet.”  Shaver noted people have different definitions of what they mean by “tech.”  Tech skills should be the focus, he said, as they are not industry bound.  He argued that we should let the market and entrepreneurs best figure out how to put those skills to use.  Deciding to champion an industry or sector is not the way we should be thinking or approaching this.