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Conservative Excuses Aside, Minnesota Still Outperforms Wisconsin

August 11, 2014 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

Since the 2010 election of progressive Governor Mark Dayton in Minnesota and conservative Governor Scott Walker in Wisconsin, the Gopher State has outperformed the Badger State in terms of job and income growth. While acknowledging the reality of Wisconsin’s subpar performance vis-à-vis Minnesota (the weight of evidence makes it difficult to deny), conservatives have sought to explain it away in a manner that leaves the viability of their anti-tax agenda intact. Their efforts thus far are unconvincing.

The explanation they have come up with is that Minnesota’s superior performance vis-à-vis Wisconsin is not related to different tax and investment strategies between the two states, but to differences in the mix of industries. According to this line analysis, Minnesota’s economy is concentrated more heavily in industries that have done well—or at least less badly—in recent years: specifically, finance and insurance, healthcare, and low-end retail. Meanwhile, Wisconsin’s economy is more heavily concentrated in manufacturing, a sector that has fared poorly in recent years. These differences, according to conservatives, explain why Minnesota’s economy has outperformed Wisconsin’s.

The veracity of the conservative explanation of Wisconsin’s lackluster economic performance can be examined using annual Gross Domestic Product (GDP) data compiled annually for each state by the U.S. Bureau of Economic Analysis (BEA). GDP represents the monetary value of all the finished goods and services produced within a jurisdiction's borders within a time period (usually measured on an annual basis). BEA estimates breakdown each state’s GDP into specific industries, thereby allowing us to determine the industries that comprise each state’s economy and rate of growth within each industry.

As with income and job growth, Minnesota’s real GDP growth (7.5 percent) has far surpassed Wisconsin’s (4.5 percent) from 2010 to 2013 (the most current year for which state-specific BEA GDP information is available). If we focus exclusively on private sector GDP growth, Minnesota (8.7 percent) again outpaces Wisconsin (5.5 percent). Minnesota’s GDP growth exceeds the national and Great Lakes* averages, while Wisconsin’s falls short of both.

The conservative premise that Minnesota’s economy is more heavily vested in the relatively prosperous industries of finance and insurance, healthcare, and low-cost retail is not borne out by BEA data. First off, the GDP of these industries have not grown significantly more rapidly than total GDP—and in some instances less rapidly—during the period in question. Secondly, these industries are no more heavily concentrated in Minnesota than in Wisconsin.† In short, the assertion that Minnesota “has been more blessed [than Wisconsin] by industries that have enjoyed an economic bounce the past few years” is not borne out by the facts.

It is true that Wisconsin’s economy is more heavily vested in manufacturing than Minnesota’s; manufacturing comprises 19.5 percent of Wisconsin’s GDP, a full third greater than in Minnesota (14.4 percent). However, the cause of Wisconsin’s low rate of GDP growth relative to Minnesota is not the result of Wisconsin’s heavier dependence on manufacturing, but rather the fact that manufacturing in Wisconsin has grown at a significantly lower rate than in Minnesota: 10.7 percent in Minnesota versus 4.0 percent in Wisconsin.

Nationally, growth in manufacturing from 2010 to 2013 was not significantly below the rate of total GDP growth, while manufacturing growth exceeded total GDP growth in Great Lakes states. The problem from the Wisconsin perspective is not that it is heavily dependent on manufacturing, but rather that the rate of manufacturing growth in America’s Dairyland was less than half that of Minnesota and well below that over every other Great Lakes state.

Furthermore, even if Wisconsin had a mix of industries identical to that of Minnesota, its rate of real GDP growth would only improve from 4.5 percent to 5.1 percent—still below the national and Great Lakes averages and nearly two and a half percent below Minnesota’s growth rate. The explanation for Wisconsin’s anemic economic growth lies not in its mix of industries, but in its low growth rate across multiple industries.

This analysis does not prove that Minnesota’s superior economic performance relative to Wisconsin is the result of the different policy courses that the two states have pursued in recent years. The prosperity that Minnesota enjoys today is in large part the result of smart public investments in education, infrastructure, and other public assets made over the last half century for which no current leader can claim credit. However, this analysis does show that conservative attempts to explain away Wisconsin’s inferior performance relative to Minnesota as the result of differences in the mix of industries within the two states does not pass empirical muster.

Under progressive leadership, Minnesota has responsibly balanced the state budget, restored a portion of past funding cuts to K-12 and higher education, and made important new investments in all-day kindergarten and early childhood education, infrastructure, workforce development, and affordable housing and healthcare. All this was achieved while simultaneously increasing tax fairness, lowering taxes for most Minnesotans, and reducing the projected Price of Government to an all-time low.

In light of these accomplishments and Minnesota’s superior track record in job, income, and GDP growth relative to Wisconsin, conservatives have yet to make any even remotely compelling case as to why we should let them “go all Scott Walker on Minnesota,” as one GOP gubernatorial candidate has suggested. After all, the failed should emulate the successful, not the other way around.

 

*“Great Lakes states” as used here refers to the states of Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin.

†“Low-cost retail” is not a category reported by the BEA. However, total retail is a slightly larger share of total GDP in Wisconsin (5.6 percent) than in Minnesota (5.3 percent).

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3 Comments:

  • Dan Conner says:

    August 18, 2014 at 7:23 am

    Un daunted by the facts, Republicans still cling to their guns, beating up on the poor, and giving wholesale tax incentive to the rich.  They refuse to believe trickle-down economics is a laugh.  I guess that’s because the 1% really controls the party and they never have enough.  They will kill everything to preserve and grow their wealth.  Considering that WI was way ahead of Minnesota ahead of the 2008 depression (that’s because we had Pawlenty).  Liberal Keynesian economics and Governor Dayton have worked to strengthen Minnesota.  Friedman and Walker have helped ruin Wisconsin.  Republicans will continue the destruction because they selfishly value themselves over America.  They re not patriots.

  • Tim Gieseke says:

    August 18, 2014 at 7:24 am

    I appreciate the recognition of “The prosperity that Minnesota enjoys today is in large part the result of smart public investments in education, infrastructure, and other public assets made over the last half century for which no current leader can claim credit.” 

    It is often subtle, fundamental approaches to managing the various capitals that generate wealth over the long haul.  The leadership challenge in front of us is if we can envision governance, not in the last half century, but in the next half century.  As our nation shifts into a knowledge and resource/energy economy, our existing government infrastructure will begin to show its age.  Much of the state government functions as a top-down hierarchical model while much of the business community is moving to a node-network model. 

    This is the equivalent of “disruptive innovation” that has occurred during the recent decades in the private sector.  Ironically, disruptive innovation is anything but disruptive for the constituents that adopt innovative and effective strategies; that is why disruptive innovation occurs.  For those that hang on to the last half century policies and government model, it will seem like a tectonic shift in governance.

    Tim Gieseke
    Lt. Gov Candidate
    Hannah Nicollet for Governor
    Independence Party of Minnesota

  • Gregg Harcus says:

    August 18, 2014 at 7:40 am

    States with progressive goverence tend to do better because companies want good infrastructure, education, etc not just low taxes. Quality of life matters but the GOP and conservatives is low taxes at any cost.