Indiana Has Lost its Economic Touch

April 20, 2009

For release April 22 and thereafter (633 words)

With the “Tea Parties” behind us, let’s get down to business: After a century of being one of the most innovative creators of jobs and wealth in the nation, Indiana has lost its economic touch. In a depressed economy, it could be one of the big losers.

Idle speculation? No, economists see a growing separation between those states whose policies defy investment and those states whose policies don’t.
The Statehouse is adamant, though, that Indiana is in the “winner” camp. When the issue of jobs comes up (as it did last month when we hit 10 percent unemployed) it is noted that Indiana generally outperforms its neighbors Michigan, Ohio and Illinois.

But Indiana isn’t competing against any of those states. It is competing against Utah, Colorado, Arizona, Virginia, South Dakota, Wyoming, Nevada, Georgia, Tennessee, Texas, Florida, Arkansas, North Dakota, Idaho, Oklahoma and Alabama.

Those are the states that (in order) outrank Indiana on the American Legislative Exchange Council’s most recent Economic Competitiveness Index. [1] And with the exception of Colorado, all those states are right-to-work states. That means workers there are free both to join unions and to refrain from joining unions. In each of those states forced unionization is seen as a violation of the Constitutional right to freedom of association as well as the common-law principle of private ownership of property.

Right or wrong, the market likes the idea. Ohio lost 10,400 jobs this past decade while Texas, a right-to-work state, attracted 1,615,000 new ones. [2]  During these last 12 months, the worst year in stock-market history, Indiana unemployment nearly doubled, going from 5.3 percent to 10 percent (+4.7). Ohio went from 6.1 percent to 9.7 percent  (+3.6). Texas, though, went from a low 4.6 percent to a relatively manageable 6.7 percent (+2.1). [3]

Only one of this year’s Forbes magazine 10 “Most Taxed” states (Wyoming) enjoys right-to-work status. None of its 10 most “Downsized Cities” is in a right-to-work state and fully nine of the top 10 “Relocation Destinations” are in right-to-work states (the exception being Denver). [4]

There is another problem: In the 1970s, Indiana approved a collective-bargaining law that treats public employees as if they were competing in a free market. At the extreme, members of teacher unions elect boards of education, i.e., their own bosses.

The law in effect micromanages the state’s huge education system and drives all other budget considerations. The group of Democrat legislators elected with the support (or acquiescence) of the Indiana State Teachers Association constitutes a political machine running the Statehouse. It has been impossible for even the most stout-hearted legislative or gubernatorial reformers to control spending levels.

There is blame, too, for the Republican leadership. Restoring the rights of employers or making students the primary concern of schools never seems to make the “to do” list of the Party’s most influential.

In sum, it is a good bet that this political culture is flubbing other decision in ways that deter investment and squash innovation — that is, scaring away Indiana jobs.

You won’t be surprised to learn that Indiana has lost its reputation as a low-tax state. The Tax Foundation now ranks us 28th in overall tax burden, reports Andrea Neal in a recent column for The Indiana Policy Review. That compares with a 41st-place ranking as recently as 1983. And Indiana homeowners now are 23rd in the amount they pay for property taxes as a percentage of home value. Marion county’s sales tax is close to the nation’s highest.

As Neal concludes: “We’ve been on a slippery slope of tax hikes that have allowed us to invest in education and services but could ultimately damage our business and employment climate.” [5]

Slippery tax slopes, market forces, Constitutional law, union political machines, out-of-control spending, political cowardliness — all of this will color our elections these next few cycles. That will be especially true as voters in a depressed economy learn what is differentiating “winning” states from “losing” ones.

Craig Ladwig is editor of The Indiana Policy Review.

1. Jonathan Williams. “Rich States, Poor States: The 2009 ALEC-Laffer Economic Competitiveness Index. Inside ALEC, April 2009.

2. Editorial. “Texas vs. Ohio.” The Wall Street Journal, March 3, 2008.
3. Bureau of Labor Statistics Chart. “Year-Over-Year March Change in Jobless Rate.” The Wall Street Journal, April 17, 2009.
4. For a historical comparison of right-to-work and compulsory union states see James Hohman’s study for Michigan’s Mackinac Center, “The Right-to-Work Advantage in Economic Growth: A Look at Past Performance,” April 28, 2008.                                                                                                                           5. Andrea Neal. “Tea Party Aims to Put Politicians in Hot Water.” The Indianapolis Star, April 15, 2009.


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