Rick Haglund: Indiana economist says focus on low taxes and less regulations has been a bust

Over the past few decades, Indiana has often been cited as a strong economic model for neighboring Michigan.

Michigan economic developers, business lobbyists and mostly Republican lawmakers have long envied the Hoosier State’s business-friendly policies that include low taxes, light regulation and aggressive business attraction tactics.

Those elements apparently helped Indiana best Michigan in winning a $2.5 billion electric vehicle battery plant to be built in Kokomo by automaker Stellantis and joint venture partner Samsung SDI. The plant is expected to employ 1,400 workers when it starts production in 2025.

Local officials in Kokomo told Crain’s Detroit they believe Indiana’s favorable business climate, particularly its mild environmental regulations, played a key role in landing the battery plant. 

Stellantis, which has been hit with multiple air quality violations by Michigan regulators at its new Jeep plant in Detroit, likely appreciated Indiana’s more business-friendly regulatory approach, local officials said.

But a new study by a prominent Indiana economist Michael Hicks presents a damning view of the state’s economic performance over the past decade and its business-focused policies he says threatens Indiana’s economic future.

“Despite favorable business conditions for Indiana’s economy, the recovery from the Great Recession marked the fastest relative decline in living standards, worker productivity, population growth and educational attainment in the state’s history,” said Hicks, director of Ball State University’s Center for Business and Economic Research.

In a nutshell, Hicks said Indiana’s problem is that it has sacrificed investing in education in favor of low taxes and increased spending to court business investment. Since 2010, the state has spent an additional $5 billion on business attraction incentives, but added just $17 million to college and university budgets.

“This approach enjoys widespread political support, but there is little to no empirical support,” Hicks said in his study. “In short, the low-tax policies pursued from 2010 to 2019 failed to produce broad economic growth.”

Boosting the educational attainment of Indiana’s workers — particularly adding more workers with bachelor’s degrees — will be crucial for Indiana to prosper in a growing knowledge economy, Hicks’ study contends.

Just 28.9% of Indiana residents held a bachelor’s degree in 2020, compared to 32.1% of Michigan residents with four-year sheepskins. Both states were below the national average of 32.9% that year. Furthermore, Hicks’ study found that Indiana’s educational attainment relative to the nation’s rate declined over the past decade.

Indiana, like Michigan and other states, has prioritized growing the number of workers in the skilled trades and other occupations that don’t require a four-year degree. That approach is wrong-headed, although “the skilled trades are as fine and honorable a career choice as anything available,” Hicks wrote in a column about his study in the Muncie (Indiana) Star Press.

The problem is that most new good-paying jobs require a bachelor’s degree. Nationwide, 80% of all net new jobs go to workers with bachelor’s degrees, Hicks’ study said. The remaining 20% go to those with either and associate degree or some college.

Numerous studies have found that those with bachelor’s degree or higher out-earn those with less education. But Hicks’ study revealed an added benefit of boosting educational attainment: workers without college degrees earn more when they live in places with lots of college graduates.

Those areas also tend to have the fastest-growing populations. Nationwide, 43% of the population growth over the past decade occurred in the top 10% counties by educational attainment, according to his study.

Indiana’s inability to supply enough workers with bachelor’s degrees has been a major drag on the state’s economy, Hicks said. The state’s decline in educational attainment relative to the nation has directly led to slower economic growth and productivity, and relative declines in income and population.

“Indiana’s business firms lack access to a robust supply of workers who are sufficiently educated and trained to adopt new technologies,” he said in the report.

Hicks isn’t alone in his dire assessment of Indiana’s economic prospects. In a recent speech to the Economic Club of Indiana that raised a lot of eyebrows, Eli Lilly CEO David Ricks said Indiana’s educational attainment level was “not good.” 

Ricks, who heads one of Indiana’s largest employers, predicted that over the next decade about 30% of traditional jobs will disappear and be replaced by “math- and science-heavy positions.”  

Indiana, he said, is ill-prepared to make that transition. Ricks claimed that just 20% of Indiana high school graduates go on to earn a bachelor’s degree.

Meanwhile, Indiana Gov. Eric Holcomb is understandably crowing about landing the Stellantis battery plant. In a news conference on May 24, he noted Indiana has “always had a rich automotive history, but with today’s announcement we all just became a lot richer.”

That’s debatable. While battery plants are critical component in the auto industry’s rapid transition to electric cars and trucks, wages in those plants might not be much higher than at fast-food restaurant chains and big-box retail stores.

Becoming “a lot richer” will require a much stronger effort to boost educational attainment to attract high-wage jobs, as Hicks’ study so extensively lays out. That’s where Michigan should be competing with Indiana.