Economics

Four Ways to Help the Midwest

A rebirth based on infrastructure, universities, small business and urban renewal holds promise.

Start over.

Photographer: Bryan Mitchell/Bloomberg

When big Midwestern states like Michigan, Pennsylvania, Wisconsin and Ohio voted for Donald Trump, they chose to roll the economic dice. It’s not clear yet whether President-elect Trump will or can follow through on his promises to revamp U.S. trade policy. It’s even more dubious whether that will have any kind of positive effect on the Midwest. But it’s obvious that his promises resonated with a lot of people in that region.

There are a number of economic and political lessons to take away from Trump’s Midwestern conquests, but the first one should be that the Midwest needs help.

There’s no question that the region, once legendary for its manufacturing might, is struggling. A team of economists, including the distinguished Stanford economist Raj Chetty, recently found that “the largest declines [in economic mobility have been] concentrated in states in the industrial Midwest states such as Michigan and Illinois.”

The question is what set of policies might work best. The program proposed by Democrats of targeted tax credits and minimum-wage hikes is nothing more than a Band-Aid. It ignores the importance of jobs, for dignity and respect, for mobility and independence, and for a feeling of personal value and freedom. Handouts ease the pain of poverty, but in the end, Midwesterners -- like most people -- want jobs, and they went with the candidate who promised them.

Nor should we simply encourage Midwesterners to move to more vibrant regions. As economist and writer Adam Ozimek has noted, many people can’t easily abandon the place where they grew up, where their friends and family are, and where they often own homes.

Another idea that probably won’t work is manufacturing-focused industrial policy. When most people think of the Rust Belt, they think of shuttered auto factories and steel mills. But while those industries might come back to the Midwest, we have no way of knowing if they’re the best bet. Governments are notoriously bad at picking winning industries, and a region’s industrial future doesn’t have to be rooted in its past.

So where does that leave us? My Bloomberg View colleague Conor Sen has a big idea that I like -- a bailout of public-employee pension obligations in the Rust Belt. A one-time rescue targeted at regions that have lost population and whose economies have stagnated would allow struggling areas to spend more on infrastructure, public services and local development initiatives.

But that’s just a first step. I propose four new pillars of a regional revitalization policy for the Midwest.

No. 1 Infrastructure

Sick economies and shrinking population have left Rust Belt states and cities unable to pay for infrastructure improvements. As a result, many cities look like disaster areas. The federal government should allocate funds to repair and improve the Midwest’s roads, bridges and trains, and to upgrade its broadband. Sen’s pension bailout idea could also be instrumental in helping states buff up their infrastructure. Better transportation makes it easier for people and goods to flow between cities in a region, and for the region to export products to other places. Infrastructure is doubly important in a region like the Midwest, where winter weather can quickly make travel difficult.

No. 2 Universities

Universities are helpful for regional economic growth. The Midwest has a number of good schools (I went to one of them for my Ph.D.), but more could be built, and existing universities could be expanded. Perhaps even more importantly, local and state governments in the Midwest could work with universities and local companies to create more academic-private partnerships and to boost knowledge industries in places like Ann Arbor, Michigan, and Columbus, Ohio. As things stand, Midwesterners tend to move away as soon as they graduate from college. Creating more industries specifically for these graduates would keep talent in the region.

No. 3 Business Development

Some cities in Colorado have embraced a development policy it calls economic gardening. The program helps provide resources for locals to start their own businesses. It furnishes them with market research and connects them with needed resources. Small businesses provide more employment than large ones, and offer a ticket to the middle class. They also have a chance of growing into large businesses. The Midwest should consider emulating Colorado’s plan, which seems to be getting results.

No. 4 Urbanism

Tech hubs like San Francisco and Austin, Texas, are using development restrictions to keep their population densities in check. That gives Midwestern cities an opening to attract refugees from the high-rent metropolises of the two coasts. Cities like Detroit and Cleveland can work on creating neighborhoods that are attractive to the creative class, while allowing housing development to keep rents cheap. College towns like Ann Arbor can reduce their own development restrictions and allow themselves to become industrial hubs. And cities can copy the crime-fighting techniques of cities like New York and Los Angeles that have become much safer during the past few decades.

These ideas are just sketches. But they represent ways that governments -- federal, state and local -- can revitalize the long-suffering Rust Belt. Some locations have already begun this transformation -- Pittsburgh, which is rebuilding a knowledge economy based around Carnegie Mellon University and undertaking various urban renewal projects, provides a great blueprint. Targeted regional development policy can prepare cities in the Midwest for the industries of the future, whatever those may turn out to be. And it can reassure the people living in these areas that their government hasn't forgotten them.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Noah Smith at nsmith150@bloomberg.net

    To contact the editor responsible for this story:
    James Greiff at jgreiff@bloomberg.net

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