In a global economy that demands at least some post-secondary education for all its workers, the same economy may be pricing these workers out of a chance for an education.
This is not exactly news, especially to parents and students who have seen the yearly increases in tuition and other costs gallop ahead of the inflation rate for many years. But a combination of factors -- continuing rising costs, unsustainable student debt, and a terrible job market -- may be pushing this problem to the crisis point. It's a national situation, of course, but of particular concern to the Midwest, which desperately needs to educate its workers for the global knowledge economy.
These thoughts are prompted by the news from Champaign-Urbana that costs at the University of Illinois for this fall's incoming freshmen will be $24,206 per year -- a 4.8 percent increase, which is well above the current inflation rate of 3 percent. This shouldn't come as a shock: tuition at public universities across the country has been going up every year by an average of no less than 5.6 percent above the inflation rate for at least the past decade. A little less than half of this year's increase, or $11,636, will go for tuition: the rest pays for student fees and room and board. Freshmen at other U of I campuses will pay slightly less than in Champaign-Urbana, but also sharply more than last year's freshmen.
These figures apply only to Illinois residents. Out-of-state students pay at least twice as much in tuition, and their total annual outlay will be half as much again as for in-state students.
This is not to point a finger at Illinois. College costs everywhere, including the other big Midwestern state universities, are rising just as fast, leading to the inevitable question:
Is it worth it?
Until now, the answer has been yes. All studies show an "education gap," with college graduates earning much more -- about 66 percent more -- over their lives than non-grads. Certainly, demand is up: the University of Illinois reports an 8 percent increase in applications for this fall's class, with 31,000 applications competing for 7,000 places in the freshman class.
There's no reason to think this will change. But a prolonged recession, coupled with an ailing job market, coupled with growing anecdotal evidence of college grads moving back in with their parents, eventually will make many families hesitate before committing some $100,000 to a four-year education that, in itself, might not be enough to admit a young grad to the ranks of the well-paid. Throw in shrinking pensions, falling house prices and other factors that are squeezing parental budgets, and the doubt can only grow.
And then add in the issue of debt. Students these days are emerging with a debt load that is becoming a national scandal. Illinois Sen. Dick Durbin and others are warning that student debt -- billions of dollars in debt, owed to banks or the government, that most likely will never be repaid -- could create a crisis similar to the sub-prime mortgage debt catastrophe.
Something has to give. It hasn't yet. But common sense says it will.
Already, lower-income students are being priced out of the market. Student aid is supposed to help such students but colleges and universities, in a desperate struggle to attract top students, have been switching from need-based aid to merit scholarships, which increasingly go to less needy middle-class students.
It seems likely that community colleges, offering two-year programs at much lower rates, will pick up business. Many community colleges report they already are enrolling more students who see them as a low-cost and perfectly adequate substitute for the more expensive freshman and sophomore years at Champaign-Urbana and other big schools. Since the recession began, community colleges have been swamped by laid-off workers seeking retraining, but that demand is receding now, leaving more room for traditional students.
A debate, more or less confined to the campus, has begun over whether a four-year undergraduate education is really necessary. More cooperation between high schools and colleges could enable high school students to do some college work, especially during their senior years, which are widely viewed by educators as a waste of time. Similarly, college students bound for graduate school could easily cram their undergrad work into two or three years.
Law schools in particular are considering this. Many law schools have been hit both by falling enrollments, due to the crushing debt load and a sharply reduced demand for new lawyers, coupled with accusations that they're not really preparing their students to practice law. This has led to suggestions that potential law students spend two years in undergraduate work, followed by two years of law school and a third year of apprenticed education -- five years of education instead of seven.
James Duderstadt, the former president of the University of Michigan, wrote a paper for the Chicago Council on Global Affairs, A Master Plan for Higher Education in the Midwest, urging a rethinking of the relationship between undergraduate and graduate education. One suggestion: big research universities like Illinois should concentrate on graduate education and research, probably financed by government and corporate grants, turning undergraduate education over to community colleges and smaller four-year colleges, both public and private.
At the least, colleges should trim unnecessary costs, such as expensive recreational facilities, new dorms, fancy dining halls and, certainly, the indefensible outlays on major athletics. To do this, though, they will need to stand up to alumni pressure and to gamble that they can still draw good students without laying on the frills. At the least, there is no sign of this happening yet.
Instead, the pressure is to keep raising the price tag for students. Theoretically, the governments of states such as Illinois should be coming to the rescue of the universities that bear their name, if only to keep education affordable for the students of those states. In fact, states are cutting back so drastically that state support now accounts for barely 10 or 15 percent, sometimes less, of the operating expenses of these schools.
In a rational world, citizens would be demanding more public support for the kind of education on which the region's economic future depends. Again, the opposite is true. Growing inequality between the educated and less educated, a declining economy, and the soaring cost of higher education has produced a popular backlash against universities that makes state aid a very hard sell politically.
Writing about the Midwest presents a problem unknown to those who write about, say, the South or New England. The problem is that no one can define, with any precision, just what the Midwest is.
I made a stab at it in my book on the Midwest, Caught in the Middle: America's Heartland in the Age of Globalism. I based my definition on what I could see and sense when I was doing my research. So I've been charmed, not to say gratified, to read a book that says that the Midwest exists as it is today because of the four great glaciers that rolled across the region, starting about a million years ago, and that this glacial expanse pretty much matches my impressionistic definition.
Geology, it seems, is destiny.
In my book, I defined the Midwest mostly as the eight states of the Upper Midwest -- Minnesota, Wisconsin, Iowa, Michigan, Missouri, Illinois, Indiana, and Ohio. But I made a point of cutting across state lines when it seemed appropriate, if only to stress how little these artificial political boundaries have to do with the reality of Midwestern life.
Thus, I let the Midwest edge across the Missouri River to take in the eastern fringes of Nebraska and Kansas. More drastically, I lopped off the southern thirds of Ohio, Indiana, and Illinois and consigned these regions to the South. I included only the half of Missouri north of the Missouri River, figuring that the southern half was more Ozark and Southern.
What was left was a cohesive region bound together by its economy, which is heavy industry and intensive farming, and its character, shaped by the first great migration of people from northern Europe and New England. The southern fringe, I reasoned, was a different region, harder and hillier, more given to small-scale farming, more shaped by its first settlers, who were the Scots-Irish from the Piedmont whose movement took them down the Ohio River and into the border states.
I also chopped the Midwest off at the Ohio-Pennsylvania border, reasoning that any states that touched the Atlantic Ocean, such as New York and Pennsylvania, couldn't be Midwestern.
Admittedly, this was less than scientific. I felt a place was Midwestern if it felt Midwestern. This wasn't perfect: I've received complaints from western Pennsylvania and upstate New York, arguing that their history and their problems are identical to those in the Midwest and they want to be part of this conversation. But folks in southern Illinois, Indiana, and Ohio haven't made a peep. My bet is that they don't feel Midwestern and don't mind being left out.
There are reasons for this, and these reasons go back more than a couple of hundred years. I learned this from a book called Portrait of the Midwest: From the Ice Age to the Industrial Era, written fifty years ago by a Chicago businessman and jack of all trades named Douglas Waitley. The book, now long out of print, was given to me by a friend who found it in a used book stall in Detroit. It's a prize.
What I discovered was that my definition of the Midwest -- that inclusion of that fringe across the Missouri, the exclusion of the area south of Interstate-70, the belated inclusion of upstate New York -- corresponds almost exactly to the furthest reach of the four great glaciers that descended and retreated over the region from a million years ago until barely 16,000 years ago.
As the glaciers advanced, they not only flattened the landscape into the great prairies we know today. They carried along a mass of debris, rocks, gravel, and grit that remained behind when they receded. This combined with the decomposed grass and leaves from earlier eras to create the rich black soil that is the basis for Midwestern agriculture.
The regions beyond the glaciers -- southern Illinois and Indiana, for instance -- didn't share this bounty of rich soil. Instead, they received the churning meltwater from the glaciers that carved the upland hills and deep valleys that remain today. (The same thing happened in the so-called Driftless Area, a small region in southwestern Wisconsin and northeastern Iowa that the glacier missed, leaving behind an area of great natural beauty but fewer natural resources and a legacy of relative poverty and underdevelopment similar to, say, southern Illinois.)
The Midwest politically is the result of two events 200 years ago -- the Northwest Ordinance of 1803, which created the Northwest Territory embracing what was to become Ohio, Indiana, Michigan, Wisconsin, and part of Minnesota, and the Louisiana Purchase sixteen years later, from which the other Midwestern states were carved.
In a sense, this area had natural boundaries -- the Mississippi and Ohio Rivers bounded the Northwest Territory, while the Missouri and Red Rivers marked the western limits of Minnesota and Iowa. In fact, these natural boundaries don't amount to much, at least as compared to the mountains that give other regions a natural territory, not to mention the history that delineates the South.
For that reason, no one can say for sure where the Midwest begins and ends. Do the mining and forestry areas of northern Minnesota and Michigan really belong? Are the Great Plains Midwestern, or are they a separate region defined by a different climate and a different economy? Can parts of Ontario and Quebec, which share the Midwest's economy and proximity to the Great Lakes, be admitted to membership? Do Buffalo and Syracuse belong to the Chicago-centered Midwest, or to the New York City-centered East?
The Midwest Governors Association includes twelve states -- the eight states of the Upper Midwest and the four Great Plains states. Our Global Midwest Initiative includes the same twelve states, although almost all the interest we've generated has come from the Upper Midwest: it's easy to conclude that the Great Plains states don't really consider themselves Midwestern.
Joel Garreau, in his fascinating book, The Nine Nations of North America, split the area between what he called The Foundry, the industrial heartland embracing the Great Lakes from New York to Toronto to Chicago, and The Breadbasket, a vast agricultural area stretching from southern Texas well into Manitoba. Considering that the three industrial states of Wisconsin, Illinois, and Iowa are consigned to The Breadbasket, this isn't entirely satisfying.
With all this confusion over the Midwest, it's no wonder that there's even less agreement on what constitutes The Heartland. This mushy concept can be used as a synonym for the Midwest, or for a down-home state of mind, or for a certain populist or conservative politics, or seemingly, for whatever the author has in mind, with no need for geographic precision.
A recent example is a new book, Remaking the Heartland: Middle America Since the 1950s, by a Princeton sociologist named Robert Wuthnow. A native of Kansas, Wuthnow refers to his territory as the Midwest, but has virtually nothing to say about the Midwest east of the Missouri River. Rather, he concentrates on the Plains states and, especially, Kansas, seeing the region's revival exemplified in the Kansas City suburb of Olathe, which is basically an overgrown office park that, in its soullessness, could be anywhere.
I understand that the Midwest Governors Association is about to launch a project on "rebranding the Midwest," presumably to give it a sharper image. A noble effort, to be sure, but perhaps a vain one, given the general confusion on just where the place even is.
All farmers keep a constant eye on the horizon, watching for the cloud that might bring rain to nourish the crops or hail to destroy them. As the new year dawned, the most ominous financial cloud in a generation appeared on the horizon of the rural Midwest. Even farmers too young to remember the last big storm would be wise to get their financial crib doors shut before the next one hits.
It seems cruel to sound this warning just now. At the moment, farming is the one prosperous part of the American economy. Farmers are getting prices which, if not records, are very high. Corn is rising again, to about $6.50 a bushel. Soybeans are also up, to about $12 a bushel. The price of farm land has never been higher. The average price of an Iowa acre shot up no less than 32 percent last year, to $6,700: Illinois and Indiana aren't far behind. Sales of $10,000 per acre or more are common.
The real estate market may be dead everywhere else, but not down on the farm. In a recession-weary nation, it's great to be a Midwestern farmer.
So what's the problem? What's the cloud that threatens to rain on the rural picnic?
It's the news that Congress, in its cost-cutting mood, has ended the 45-cents-per-gallon subsidy for corn-based ethanol. The subsidy, which cost the government $6 billion last year, actually went not to farmers but to gasoline refiners, to encourage them to buy corn for ethanol, which reduced dependence on oil, including imported oil. At the same time, the government let lapse a 54-cents-per-gallon tariff on imported ethanol, most made from Brazilian sugar cane, which had been imposed to protect American corn growers.
Given the sensitivity of the farm lobby and its congressional backers, you'd think this double New Year whammy, coming in the midst of the Iowa caucuses, would have produced a huge outcry across the Midwest. Not at all. The two actions passed virtually unnoticed.
The reason is the existing high corn prices, coupled with the current high price of ethanol. The price of ethanol as a fuel goes up or down with the price of oil. Oil prices are high, so ethanol prices are high, meaning that refiners are willing to pay top dollar for corn. If one purpose of the subsidy was to keep corn prices up, that imperative doesn't seem very urgent right now. The market is taking care of things just fine.
So, again, what's the problem? The problem requires some knowledge of history and a familiarity with the law of supply and demand. Both teach us that what goes up can come down again fast, almost as quickly as a Midwestern hailstorm. They don't say that disaster is imminent, but they sent an intimation of trouble ahead, like a chill breeze on a summer's day.
The history occurred about 30 years ago. First, farm prices boomed, largely because of grain exports to the Soviet Union. These exports were the ethanol of their day. Given the incompetence of Soviet agriculture, there seemed no reason they would ever end.
At the same time, interest rates were relatively low. The government eased regulations on lending to farmers, and urged farmers to buy land, to get big, to become more mechanized. Many did, borrowing the money. With the crop money flowing in, why not?
And then it ended. President Carter punished the Kremlin for invading Afghanistan by embargoing grain exports to Russia. The government had financed the Vietnam War by borrowing, not by taxation: the resulting government debt led directly to double-digit inflation, which required double-digit interest rates to control.
Suddenly farmers found that their best market had disappeared, while the loans they had taken out to buy more land cost a lot more to repay. Most of them grew more grain than ever, and the over-supply sent per-bushel prices down.
Many farmers simply went broke. Fifth-generation farm families lost the farm. Many small-town banks, stuck with bad loans, also went broke. Some were bought up by big banks in the state capital. Some just closed. Either way, many small towns never recovered.
The farm debt crisis of the 1980s produced foreclosures as searing as any in the recent sub-prime mortgage crisis. I attended a lot of foreclosure sales in those days, watching sympathetic neighbors bidding what they could for a farmer's equipment and land, while the farmer and his family drank coffee in their kitchen, waiting to leave the farm and move into town.
What's the moral here? One is that, in economics, nothing lasts forever -- not high demand nor high prices. This is true for city houses and for rural farms. Second is that if all prices are unstable, farm prices are triply so, high one day and low the next. Third is that the instability of corn prices is matched only by the instability of oil prices: link the two, as we've done with ethanol, and you've got a whipsaw waiting to happen.
There's another lesson -- events have consequences. Getting rid of the ethanol subsidy is a good idea: like farm subsidies in general, it always was more of a political payoff than an economic necessity. But perhaps embargoing grain exports to Russia was a good idea at the time: the embargo certainly put added pressure on the Soviet Union in its dying days.
Political decisions taken in one place can impact economic reality in another. In both cases, we had high farm produce and land prices propped up by external forces -- the Soviet exports or the demand for ethanol. Now as then, we have a boom that probably can't be sustained. And both cases involve huge government debt, caused by trying to pay for wars without raising taxes.
(I'm aware that Iowans in particular resent statement that the ethanol industry, which is crucial to the state, raises corn prices, and food prices in general. I've seen academic studies denying that the impact is more than minimal. Sorry, but I don't believe it. Fully 36 percent of all corn grown in this country goes into ethanol. Anything that creates 36 percent of demand simply has to have a big impact on prices.)
In addition, both cases involved huge government debt, caused by trying to pay for wars without raising taxes. The Keynesians who want to stimulate the economy through more deficit spending are right: nothing else will work. But let's not kid ourselves. This spending is going to come back to haunt us, in higher inflation down the road. This inflation is the lesser of two evils, but it's going to happen.
This means that the farmers who are borrowing now to buy more land and expand their holdings are building up vast debts that will be hard to service when interest rates go up, as they will, and when crop prices come down, as they will.
I haven't seen any reporting on the level of debt farmers have been taking on in recent years. But somebody is paying $6,500 per acre for the land, and most people don't have that much money in their mattress.
This bubble has to pop sometime. Before it does, it's going to get bigger. The Des Moines Register reported six years ago that much of Iowa's farmland was owned by aging farmers, many of them widows, and "as much as 50 percent of Iowa's farmland will be sold or passed on to heirs in the next 10 to 15 years." Undoubtedly, some has already been taken over by sons and daughters. But those high land prices indicate that more is already being sold, with more to come.
The bubble need not pop this year, nor the next. But both history and economics teach us that the rural Midwest, like the rest of the nation five years ago, is in an Icarus economy, and a hard landing lies ahead.
The Republican caucuses in Iowa will soon be history, not a moment too soon for most of us but especially for Iowans themselves. For months, they have been bombarded with TV ads and swarmed by plagues of politicians. Even worse, they have been diced, sliced, anatomized, psychoanalyzed and socially parsed by teams of visiting journalists and even some local writers, all straining on slow news days to explain to readers and viewers what makes this bellwether state tick, anyway.
As a native Iowan, gone since youth but a frequent visitor in recent years, I may be permitted a voice in this debate, both on the state itself and on how it's being presented, before the spotlight shifts to New Hampshire and leaves Iowa in grateful obscurity for another four years.
Much of Iowans' recent ire hasn't dealt so much with outsiders' portrayal of the state as with an article in The Atlantic magazine by an adopted son, a University of Iowa journalism professor named Stephen G. Bloom. Bloom, asked by the Atlantic to explain a state that has such an outsized impact on presidential politics, made some good points but so wrapped them in bucolic cliches and outright errors that whatever he meant to say got lost.
The article noted the decline and shabbiness of many of Iowa's old industrial cities, the brain drain of bright young people, the isolation of farm life, the laid-off factory workers stuck in small farm towns, the proliferation of casinos as a substitute for a real economy. It skewered Rep. Steve King, the northwest Iowa Republican who may be Congress' leading anti-immigration demagogue, and bemoaned the empty storefronts lining too many main streets. All these are issues that should be bothering Iowans -- because they're true, not because Stephen Bloom spotted them.
But the sheer sloppiness of the article makes it easy for these same Iowans to ignore these valid points. All journalists, if not journalism professors, know that it's necessary to sweat the small stuff, to get the details right, or be ignored. It's too easy to conclude that if Bloom thinks that Iowans hunt turkeys with rifles (instead of shotguns), he must be wrong on the economy, too.
There were a lot of these little mistakes. Some old Mississippi River towns are pretty dismal but some, like Dubuque, sparkle. Iowa is not exactly a melting pot but it's 91 percent white, not 96 percent. Not all Iowans buy dogs for the sole purpose of hunting. Most Iowans are not named Snitker or Slabach. More egregiously, Bloom relied on his memory -- always a journalistic mistake -- of a 20-year-old headline to portray the estimable Cedar Rapids Gazette, one of the Midwest's better newspapers, as a religious rag.
Outraged readers have loaded the websites with these gaffes. The Atlantic had to correct four of them online, an embarrassment for any publication. But the real problem with the article was Bloom's sweeping generalizations, more or less painting all Iowans as good-natured, gospel-walloping bumpkins, meeting the candidates down by the grain elevator over biscuits and gravy or, more elegantly, Tatertot casseroles, getting their kicks from tractor pulls and lining their country roads with billboards advertising boar semen or JESUS (in capitals).
These things exist, as they do in most states. But most states, including Iowa, are more interesting and more textured, with a reality that is much more than the sum of these traits. It's this reality that must be grasped before Iowa's role in the presidential process, and the importance we should put on the caucuses, can be understood.
First, there's more to Iowa politics than the Republican caucuses. As Bloom correctly noted, Iowa is a politically schizophrenic place, split pretty evenly between Democrats (predominately in the industrial eastern half of the state, largely urban and pro-union) and Republicans (more often found in western Iowa, more rural and conservative, where Lutherans and the Farm Bureau hold sway). Iowa is the original swing state. For years, it has sent a liberal Democrat and a conservative Republican to the Senate. Its swing status makes it vital in presidential elections. Like Ohio and other Midwestern states, it's crucial to electoral victory.
But even this is a generalization. Bloom, like others, complains that Iowa shouldn't be allowed its early primary, because "it's not representative" of the country, although he doesn't identify a more representative state. The fact is that the Iowa caucuses, which bring out activists more than traditional voters, aren't representative of Iowa politics. For that matter, the Republican caucuses aren't even representative of Iowa Republicans.
Viewers of the 14 caucus debates can be forgiven for concluding that all Iowa Republicans are far-right fundamentalists who hate immigrants, applaud at executions and believe that it's more important that a president know his Bible than his economics. This describes some Iowa Republicans, but a sane and decent person like the Republican governor, Terry Branstad, must wonder what a nice guy like him is doing in a party like that.
(Not to bait Iowa Republicans. If their caucuses once gave a top spot to Pat Robertson, Iowa Democrats did the same for Jesse Jackson. Never again did either preacher come so close to being the people's choice.)
Iowa has a reputation as one big farm, but that's wrong. Farming accounts for only 6 percent of Iowa's economy and less of its population. Manufacturing accounts for 17 percent, far enough above the national average to put it among the top five manufacturing states. More than 70 percent of Iowans live in urban areas. Fourteen of Iowa's 99 counties are officially called "agricultural," in that they get most of their income from farming. At least twice as many are "industrial," and the rest are either "service" or mixed.
Iowa indeed is mostly white but the Latino population has quadrupled in the past 20 years. Many towns remain virtually all white but cities are more diversified and some small farm and meatpacking towns are majority Latino or becoming so, as noted in a recent article on the primaries in the Financial Times.
This means that Iowa is more "representative" of the nation that many people, including locals like Bloom, think. Less than one-third of the state's Republicans rate as deep-dyed Evangelicals, which translates to about 15 percent of all Iowa voters. The rest of the state worries about the same things -- the economy, globalization, deficits, education, jobs, the Mideast, China -- as the rest of the nation.
Because the Republican caucuses don't represent Iowa or even many Iowans, they won't settle anything. But the endless campaigning there has given the rest of us a good look at some leading candidates, enabling both Iowa and the nation to conclude that Herman Cain, say, may not be ready for prime time.
For this, we all owe Iowa thanks. It's a good state filled with good people and they deserve to spend the rest of the winter in political peace.
If it truly is more blessed to give than receive, the governor of Illinois and the mayor of Chicago have just booked their reservations in heaven.
In the state and the city, the spirit of Christmas seems alive and well. But neither economy is doing so hot, and the two leaders' generosity will only make things worse.
Gov. Pat Quinn and the Illinois legislature have approved a $371 million tax-break package that includes more than $100 million for Sears Holding Corp. and the Chicago financial exchanges, which had threatened to leave the state unless they got this deal. Mayor Rahm Emanuel has given Sara Lee Corp. between $5 million and $6.5 million, depending on how many jobs they keep, to move part of its headquarters from the suburbs to downtown Chicago.
Even at this time of year, these are some sort of stocking stuffers. But it's a suitable end to a year that has seen Midwestern cities and states, all desperately needing to create new jobs and stimulate new businesses, throwing multi-billion baubles instead at old companies, many of them shrinking, in deals that seldom add one job to the Midwestern economy.
We've written about this repeatedly -- about Ohio bribing a company to move 15 miles from Kentucky, about Wisconsin and Indiana trying to steal companies from Illinois, about Kansas and Missouri battling each other so fiercely for jobs that some of Kansas City's leading businessmen wrote them both a letter telling them to grow up and cut it out. [See posts on Illinois and Ohio, and Kansas and Missouri]
All the Midwest, including Chicago and Illinois, has many needs, all expensive, if they are going to thrive in the new global economy. These needs include education, infrastructure, venture capital, fiber optics and other information economy investments -- in general, creating the kind of society and economy that will enable the region to succeed economically in the 21st century as it did in most of the 20th century.
A lot of this goes under the name of economic gardening, which means planting your seeds now and reaping the harvest later. The best way to do this is to make it easier for young, small, limber start-up companies to take root and grow into the economic engines that the big old companies were in the past.
The worst way to do it is to keep throwing money at these big old companies, for fear they will pull up stakes and leave. Not that they are insignificant employers: many are still big, if not so big as they once were. But they aren't growing, at least not here. Many are shifting routine manufacturing and clerical jobs abroad, while keeping a smaller headquarters in the Midwest. They are icons of the past but not lodestars to the future.
The problem is that politicians govern short-term, while the real needs are long-term. Quinn won't be around 20 years from now to enjoy the praise and votes of the newly employed and, probably, neither will Emanuel, unless he has inherited the Daley family's political genes. Both get paid and re-elected for cutting ribbons now.
Big companies know this and, in the Midwest, they have begun a campaign that is no more or less than corporate blackmail. Pay us, they say, give us big tax breaks right now, or we're going to move to some other city or state.
It takes political guts to stare down this kind of blackmail and no Midwestern politician has this kind of nerve. Instead, they cave. Which means that other companies are lining up to make the same threats. Everybody knows what's going on, and no one seems able to call the companies' bluff.
In Chicago, Emanuel promised Sara Lee Corp. incentives worth between $5 million and $6.5 million, equivalent to $10,000 per job, for moving 500 to 650 employees of the company's meat business from its present office in suburban Downers Grove to an old building south of the city's central Loop district. The payout is justified, the mayor said, because it will "create good-paying jobs."
It does nothing of the sort. No jobs are created. Instead a few hundred jobs are moved 22 miles. These workers will be the same people, doing the same jobs, but commuting in a different direction. In fact, Sara Lee plans to fire about half of its present staff as part of the move.
The subsidies are the action of a mayor who felt that the health of the city's suburbs has nothing to do with the city itself.
In fact, it appears Emanuel did it just to prove he could. Having denied that the move implied a "battle" with the suburbs, he added, "it implies the DNA of an Emanuel."
Sara Lee promises to rehab its new building, which needs it. But the company's executive chairman, Jan Bennink, said they would have made the move and invested the money whether or not Chicago tax-payers picked up the tab. The incentives, he said, are "important," but "I wouldn't call it a deal-breaker."
The state's incentives went to once-mighty Sears and the still-mighty financial exchanges -- Chicago Board Options Exchange and the CME Group, parent of the Chicago Mercantile Exchange and the Chicago Board of Trade. They were part of a $371 million package of tax reductions, partly for breaks for wealthy taxpayers, mostly for businesses.
The idea seems to be to prove that Illinois isn't as business-unfriendly as the state's critics, especially neighboring states, make it out to be. But a state government awash in red ink, as the Illinois government is, shouldn't be giving away $371 million that could be better used elsewhere.
Illinois gave Sears $250 million twenty years ago to stay in Illinois. The break this time will save the company some $275 million over fifteen years. It had been threatening to move out of the state unless it got these concessions, possibly to Ohio, which had offered the company $400 million to go there.
The loss of the financial markets would be a severe blow to Chicago's economy and image. They've been in Chicago since the 19th century and played perhaps the key role, along with the railroads, in the growth of the Midwestern economy.
But if Chicago needs the markets, the markets need Chicago. The city is a repository of the sort of human capital -- the traders, economists and support services -- that the markets need. A recent example: the Chicago markets pioneered global derivatives trading largely on the ideas of economists at the University of Chicago, a bus ride south of the trading floors.
Would the markets really have left Chicago? Would Sears really have left Illinois? Would any company, in any state, go to the hassle and expense of moving operations and headquarters if they weren't bribed to do so?
No one knows and, at this rate, we'll never find out. Businesses have learned that, in a time of high unemployment, they can whipsaw governments, which will give them what they want rather than be accused of risking jobs.
The only solution is a truce, an agreement between states, cities and counties to end this piracy. Such truces exist in some localities around the Midwest. But a regional cease-fire seems unlikely.
Christmas is supposed to bring peace on earth. I'd be satisfied with peace in the Midwest.
The Midwest has become the political fulcrum of America. Some Midwesterners, especially the over-politicked citizens of Iowa, might be willing to forego this honor, but the fact remains that Midwestern politics is setting the agenda for the election year to come.
If American politics are becoming more partisan, these Midwestern battles exemplify the split between right and left. With the Republican caucus in Iowa set for Jan. 3, the clout of right-wing Republicans, especially evangelical Christians, is pulling that party's presidential candidates far to the right of many moderate Republicans. In Wisconsin and Ohio, a Democratic backlash against attempts by Republican governors to break public service unions is pushing the Democratic party into a pro-union stance that may not play with the party's national electorate.
The probable Republican presidential candidate, whoever he or she is, is going to leave Iowa with a far-right stance that will be hard to shed in the national campaign ahead. On the Democratic side, President Obama is going to have to come out swinging for public service unions or risk alienating his party's base.
These Midwestern pressures on both sides could easily influence the November elections. Of the eight core Midwestern states, seven are swing states. Only Indiana is reliably Republican, and even Indiana joined the other seven in helping Obama sweep the region in 2008. The 2012 election looks much closer, and Obama is going to have to hold on to most of his Midwestern base to win re-election.
Given these stakes, the local battles going on now have national importance.
Iowa is a schizophrenic state politically, but you'd never know it from the drumbeat of political news out of the state in recent months. Iowa traditionally splits its vote down the middle, with industrial and unionized eastern Iowa going Democratic and rural, religious western Iowa going Republican. Over the years, Iowa has usually had one liberal Democratic senator and one conservative Republican senator: Sen. Tom Harkin (D) and Sen. Charles Grassley (R) carry on that tradition. The current governor, Terry Branstad, is a moderate Republican: his predecessor, Chet Culver, was a moderate Democrat.
So the evangelical right that is driving the caucus campaign there doesn't even speak for Iowa, much less the nation. A Republican candidate acceptable to this far-right fringe would have a hard time carrying the state in November and would turn off centrist voters around the nation. Yet the leading Republican candidates have been forced into statements -- on abortion, same-sex marriage, immigration, the economy -- that they will be hard-pressed to disavow later.
Wisconsin and Ohio are not mirror images of Iowa but in some ways present equal problems for their parties. In both states, the rights of public service unions will be front and center, and in both, it's the Democrats who are pushing the issue in what appears to be a voter backlash against ideological overreach by new Republican governors.
Wisconsin captured front pages earlier this year when the new governor, Scott Walker, moved to end collective bargaining rights for public service union members, including teachers and other state and local employees. Democratic state senators fled to Illinois to deny Walker and his allies a quorum, but in the end, the Republicans' control of the legislature enabled Walker to push his program through.
The unions struck back first by forcing recall elections against six state senators. Had they won half the races, the Senate would have tipped back to Democratic control. But they won only two out of the six -- enough to send a message but not enough to stop Walker.
Now Walker himself faces a recall election in the new year. So do four other Republican senators. To make the election happen, Walker's opponents need 540,208 signatures on their recall petitions by the Jan. 17 deadline. At the moment, it looks certain that they will get that many, and more.
Here's where Wisconsin's impact on national politics gets speculative. The recall election, for Walker and the other Republicans, could come as early as March 17 -- in other words, nine months before the general election in November. But there certainly will be Republican appeals against the petitions and other court challenges. It's possible that this could put the recall election on the same day as the national election, which is Nov. 6.
There is unmistakable anti-Walker and pro-union fervor in Wisconsin, enough to defeat those two senators in the summer and fill petitions over the winter. Wisconsin is one of the most evenly balanced of the Midwest's swing states. If the anti-Walker voters pour out on election day, this could tip the state into the Democratic column, not only defeating Walker but helping to re-elect Obama.
On the other hand, the Republicans too have a lot at stake. If they see Walker as prey for the unions, they also will troop to the polls.
Then there's the four senators facing a recall election. In the earlier recall election, several Republican senators survived not because of their ideology but because they were local people, known to many voters and popular in their constituencies. The same sort of local identity seems certain to complicate the vote, whether it comes in November or earlier.
(In the meantime, the Democrats and unions, having gathered enough signatures to force a recall election, still have to come up with a Democratic candidate to run against Walker in that election. Some of Wisconsin's leading Democrats, like Russ Feingold and Jim Doyle, refuse to run. No other candidates have stepped forward. You can't beat somebody with nobody and, in Wisconsin politics, Gov. Walker definitely is somebody.)
Ohio is the quintessential swing state. In the past 13 presidential elections, no candidate has won the Oval Office without winning Ohio. Once again, union politics are a key issue in this election.
Gov. John Kasich also pushed a harsh anti-collective bargaining law through the Republican-dominated state legislature. In a referendum last month, Ohio voters repealed that law by a huge 60 percent margin. Ohio has no provision for gubernatorial recall, so Kasich is safe for the next three years, but the Democrats will be going after the governor's legislative majority in the coming November election.
The main target is Republican control of the Ohio House. The GOP controls two-thirds of the Senate, a probably unbeatable margin, but Democrats think they can capture the House, which could cripple Kasich's future programs.
Once again, local politics will affect the presidential election. If the Ohio Democrats can keep the anti-Kasich fervor going, it could undermine the Republican ticket and prop up the Democratic ticket, led by Obama, who desperately needs Ohio if he is going to win a second term.
The Democrats, as usual, will probably win the Northeast and much of the West Coast, including California. The Republicans have a lock on much of the South and the non-coastal West. So once again, this presidential election will be won and lost in the Upper Midwest, and the fight has already begun.
I spent the last week in Galena, a gem of an old Victorian town, nestled in the hills and forests of the so-called Driftless Area, in northeast Illinois near the Mississippi River Valley. I came away thinking how this area could be more than the beautiful but generally depressed region it is now.
Galena itself seems to be doing fine. It is a tourism and second-home mecca, packed with good restaurants and refugees from Chicago. But the Driftless Area itself is divided between four states and some 25 to 35 counties, depending on where you draw the boundaries. None of these jurisdictions -- not the states nor the counties -- has been able to work with the others to leverage the region's scenic potential and combat the economic distress that, like the scenery, they all share.
Most outsiders think of the Midwest as one big flat cornfield. Much of the region lives up to this conception. But the Driftless Area is a dramatic region of deep river valleys, rolling hills, rocky outcroppings, caves and dense timberland.
"Driftless Area" is an odd name and says more about what the region is than it isn't. It's the region in the Upper Misssissippi Valley that escaped the glaciers that flattened much of the rest of the Midwest. Instead, it's landscape was carved by rivers big and small, leaving behind little of the glacial "drift," the silt, clay and other material left behind by receding glaciers.
The result is a rugged area with more small towns than cities, more small farms than factories. Ethnic ties remain strong: the little Iowa town of Spillville, where Antonin Dvorak conceived his American Quartet, is still an outpost of Czech culture. It is probably the most beautiful single area in the Midwest but, compared to other tourist draws like Indiana's Brown County and Michigan's Leelanau Peninsula, little known.
Unlike the Grand Canyon, the Driftless Area announces itself slowly and its boundaries are vague. It includes parts of four states -- southwestern Wisconsin, southeastern Minnesota, northeastern Iowa and the northwestern tip of Illinois. Technically it stretches from the southeastern suburban sprawl of St. Paul-Minneapolis down to Waterloo in Iowa and past Dubuque to western fringe of Madison, Wisconsin's capital. This gives it nine counties in Minnesota, sixteen in Wisconsin, eight in Iowa, and part of three in Illinois.
In truth, it's more compact than that. Its core embraces twelve counties in Wisconsin, perhaps five in Minnesota, a half dozen in Iowa, and one or two counties in Illinois. Its cities (50,000 people or more) are Rochester in Minnesota, LaCrosse in Wisconsin, Dubuque in Iowa, and that's it.
I've traveled enough in the Driftless Area, in all four states, to know that the residents would love to put their scenic beauty to some economic use. But by and large, they seem unaware that they share this beauty and ambition with the other states and have no idea how to work with across state lines for their mutual benefit.
One big problem is the states themselves. All four states have their own competing tourism programs, run from the state capitals, which see tourism as a zero-sum game, never thinking that a tourist who lodges in Wisconsin, say, might cross the Mississippi for some recreation in Iowa. Local officials who'd like to cooperate with the folks across the state line say they are stymied by state governments, especially legislatures, who would never dream of spending a tourism dime that just might benefit some other state.
(Actually, the states do cooperate on projects to protect the natural environment in the Area. But like much of the work going on around the Great Lakes, these projects are devoted to preservation for wild life, not jobs for the people who live there.)
Most county policies seem equally jealous and short-sighted. Jo Daviess County, where Galena is located, does a good job of promoting itself to tourists but spends little time boosting Dubuque, even though most tourists would have to drive through Galena to get to Dubuque and might even stop for the night.
As with tourism, so with economic development in general. If cities like Rochester and Dubuque are prospering, most towns and villages in the Driftless Area are shriveling. It would be a great place to live, for families as well as retirees, if there were jobs, good schools, and good stores. But like so much of these Midwest, the towns and counties of the Driftless Area largely lack these necessary magnets and are too small to campaign effectively to get them.
Once again, states are no help. With Midwestern governors fighting each other for investment, they aren't likely to join forces to promote economic development in their most job-hungry regions.
So if the Driftless Area and its people are going to thrive in the global era, they're on their own.
Every town and city in the Midwest faces this governmental parochialism, both state and local. But some have energized their economy despite these governmental barriers, and the residents of the Driftless Area could take a tip from these success stories.
First, don't wait for government to take the lead. It can't and won't. Governments are elected to serve their state or town, not states or towns next door. Governments can help, but they can't lead.
Instead, regionally-minded leaders and institutions -- college or university officials, economic development professionals, business people, community colleges, churches -- should identify like-minded stakeholders in other parts of the Area and get a conversation going. They'd be surprised how much they have in common.
Actual projects can start small and get bigger. This could mean some joint marketing of the region for tourism, without reference to state tourist agencies. It could mean a joint festival, such as a food festival or a music festival, that could bring outside tourists to the entire region: both Illinois and Iowa benefit from the annual Bix Beiderbecke festival in Davenport. It could mean common efforts to develop a small region, like some of the bluffs along the Mississippi, and market it together.
Or it could mean joint marketing for economic development, drawing on Dubuque's success in attracting a big IBM center. It could mean the community colleges of the region working together to teach skills needed for certain industries, like the joint academic efforts promoting the health industry in the LaCrosse-Winona area. It could mean using the region's base in dairy farming for agribusiness industries.
These are a few ideas, by no means exhaustive. Mostly, it will require forward-looking citizens talking and planning together.
This isn't easy. Overcoming ingrained local suspicions never is. These citizens will need a mutually-acceptable neutral meeting place. They may need to hire an outside "coach," a facilitator skilled in promoting these conversations. Mostly, it will take time: building a new economy always does.
This, in turn, will take money -- probably private money, not government funds. This means raising capital from local families, perhaps persuading wealthy families to invest in a foundation that could lead this process. This is more possible than it sounds: I was impressed by the ability of private citizens in Galena to raise money to endow parks and other amenities. Governments that would shun citizens seeking public funds will give a warmer welcome to citizens who bring their own money to the table.
In the global era, size counts. Strictly local initiatives start with a heavy handicap. Seeking out friends and collaborators pays off, even in such a divided region as the Driftless Area.
It's easy to get that neglected feeling, sitting here in the Midwest, surveying the industrial collapse in our own back yard and wondering if anybody out there really cares. The pre-dawn dustup in Zuccotti Park gets more national air time and ink than the destruction of Midwestern towns and cities, even though the same pathology -- an economy out of control -- underlies both. As Willy Loman's wife said in The Death of a Salesman, "attention must be paid."
That may be changing. In the past few days, at least two nationwide broadcasts have looked at the plight of old industrial cities in the Midwest. Both recognized the economic problems but emphasized positive measures to remedy them.
Jennifer Granholm was the governor of Michigan from 2003 to 2011. Terms limits prevented her from running for a third term, which may have been a relief for her: a first-rate politician and public servant, she had the bad luck to inherit a state economy dependent on the auto industry, just as that industry tanked. When she left office, Michigan's unemployment rate was the nation's highest.
Granholm is teaching now at the University of California, but she's written a memoir, "A Governor's Story." On Nov. 13, Fareed Zakaria interviewed her on his CNN show, GPS, and she talked about some of the lessons she learned as governor.
Granholm said she came into office hoping to do some serious spending on education, including early-childhood education. Instead, she got trapped in the economic storm and ended up cutting taxes and spending, leaving Michigan the 48th most parsimonious state in the nation in the size of its government relative to its population.
All this money-saving may have been necessary, but as she admitted, it didn't help Michigan. The state was caught in the gales of globalization, especially the off-shoring of Michigan's traditional assembly-line manufacturing and the disappearance of thousands of working-class jobs.
In the end, she said, she realized that cutting taxes and spending achieves little. What's important is positive investment -- by government but, especially, by the private sector. A public-private partnership is key, and if the private sector bails out, there isn't much that government can do.
The auto industry lost most jobs. But what seems to have stung Granholm most was her experience in Greenville, a small manufacturing town centered on a big Electrolux factory. When the Swedish owners threatened to move the plant to Mexico, Greenville, the state and the union came up with a multi-million package designed to keep them in town. According to Granville, Electrolux took 17 minutes to turn them down.
It is time, Granholm said, for business to recognize its public responsibility and join government in working to create jobs and economic vitality. Government can give some tax breaks, she said, but only with real strings attached that make business part of the solution.
A day later, I was on the NPR program, Talk of the Nation, when the subject was "Company Towns, After the Company Leaves Town," and two of the guests were Chaz Allen, the mayor of Newton, Iowa, and Tommy Battle, the mayor of Huntsville, Alabama. NASA still dominates Huntsville's economy but has cut hundreds of jobs from space programs there. Maytag once dominated Newton's economy, but the company was sold to Whirlpool, which closed its Newton operations four years ago. Maytag once employed 4,000 people in Newton, a town of 15,000. All those jobs vanished.
Huntsville is outside our territory and, as a town dependent on the government, doesn't face the same global economy forces that most industrial towns do. But things have begun to look up both for Allen, who was re-elected mayor earlier this month, and Newton, which is slowly putting its economy back together.
The differences between Huntsville and Newton, however, are instructive. Huntsville seems to remain a company town, and the company is NASA. Newton used to be a company town, but when that company went away, Newton set out to diversify its economy, hoping to replace one company employing 4,000 people with 40 companies each employing 100 jobs.
It's not there yet, but some progress has been made.
TPI, a company that makes wind turbine blades, employs about 650 people in Newton. A similar company, Trinity Structural Towers, employs 150 people to make wind turbine towers in part of the old Maytag plant, next to a company with 35 employees making cardboard boxes. In the center of town, Caleris, an IT firm has moved into the old Maytag headquarters and employs 300 people. A group of former Maytag engineers has created Springboard Engineering, with about 35 employees. South of town, a new NASCAR track provides tax revenue but has produced few fulltime jobs.
Newton hasn't really turned the corner yet. According to a recent story in the Des Moines Register, Jaspar County, where Newton is the county seat, still has one of Iowa's highest unemployment rates, at 8.1 percent. (The highest rate is Hamilton County, where yet another closing by, yes, Electrolux has decimated the economy. Electrolux may be the worst thing to happen to the Midwest since the corn borer.)
Also, Newton had a large number of white-collar workers, because it was a Maytag headquarters town, and many of those white-collar workers are having a harder time finding work locally than blue-collar workers. Some were employed by Iowa Telecom, which moved into the old Maytag building, but these workers -- including Mayor Allen -- lost their jobs when an Arkansas firm bought Iowa Telecom. (Allen has landed on his feet, as manager of a local bank.)
In addition, the structure of the town's employment has changed. Before Maytag left, 60 percent of Newton's residents worked in the county: today, 62 percent commute out to jobs in Des Moines and other nearby cities. In return, more workers are commuting in: license plates on Iowa cars tell the home county of the car's owners, and I'm told that many of the cars in the lots outside the new wind turbine plants come from outside Jasper County.
There are some lessons here.
If Newton is going for diversification, it seems to be working. In the past century, far too many Midwestern cities relied on one company or one industry. Those cities are imploding now, as the companies, like Maytag, leave. Diversification is smart.
It helps to have been a headquarters town. Company headquarters, like Maytag in Newton, employ managers, researchers and other white-collar workers that can spin off their knowledge into new local start-ups like Springboard. Assembly-line workers too often have no choice but to leave town to find work. Hamilton County, where the Electrolux plant was only a branch of a global operation, is likely to see this exodus now.
Getting new jobs into a hard-hit economy is half the battle. The other half is getting good jobs. Those Maytag line jobs were union jobs paying good wages: the wind turbine jobs, by and large, pay less. As a result, according to the Register, the average Jasper county income fell 11 percent between 2003 and 2009, while the average state income rose 17 percent. This means Newton residents have 11 percent less to spend, which is a blow to other businesses in town.
When trouble strikes, it helps to be near prosperous cities. Many Newton workers have found jobs in Des Moines, Pella, Marshalltown and other relatively strong nearby towns, all about 30 miles away. Hamilton County's nearest city is Fort Dodge, itself a decayed economy. Ames is 40 miles away, Des Moines nearly 70 -- a long commute when gas is $3.50 per gallon.
Finally, all Midwestern manufacturing towns should know by now that the old days of steady support by one traditional company are vanishing. It pays to prepare. Newton didn't but has been scrambling effectively since Maytag left. Webster City, the county seat of Hamilton County, ignored some obvious signs that Electrolux would leave and is just beginning to figure out what it's going to do next.
Richard C. Longworth appeared on NPR's Talk of the Nation today with Mayor Chaz Allen of Newton, Iowa, and Mayor Tommy Battle of Huntsville, Alabama, in a segment called "Company Towns, After the Company Leaves Town." Click here to listen to the discussion.
In this third year of the Great Recession, jobs -- how to get them, how to keep them, how much they pay -- are the key issue, in the Midwest and across the nation. Two recent newspaper articles focused on this issue and, in the process, revealed what's being done, what's being done wrong, and the price we all will pay in the future.
The Chicago Tribune turned its Sunday business section over to a study of the job retention program adopted by the state of Illinois, focusing on Gov. Pat Quinn's policy of giving hundreds of millions of dollars in tax credits to companies to get them to stay in Illinois (see articles here, here, and here). A day later, the New York Times singled out Michigan as an example of the states and cities that are firing government workers in veterans' hospitals, prisons and other state-run facilities and replacing them with contract workers making as little as half as much.
We've written here on both issues in the past, so this is an update on two of the hottest topics on the Midwestern economic agenda.
The Tribune stories reported that Quinn, in his two years in office, has offered nearly a half billion dollars in tax credits to companies that promised to create 5,709 jobs and retain 22,610 jobs. A Tribune chart showed the state has pledged another $433 million over the past decade to 177 companies that promised to create some 30,000 jobs and retain roughly 20,000 more. The tax credits ranged from $34.7 million to JPMorgan Chase to five-figure packages for smaller companies at the bottom.
All this is under a program called Economic Development for a Growing Economy, or EDGE. In each case, the companies promised to make investments in Illinois well in excess of the tax break: JPMorgan Chase, for instance, promised investments of $350 million, ten times its tax breaks, and pledged to create 298 jobs and keep 2,247 more.
The program is wildly inconsistent. Jet Sert Co., a Chicago maker of puddings and freezer bars, got credits that equaled $375 per job a year. James Hardie Buildings Products Inc., pledged to create 22 jobs for tax breaks equal to $10,210 per job. Boeing got tax breaks of $12 million, equal to $22,857 for each of the 525 jobs it promised to create.
Not all the tax breaks have been cashed in. Companies have to deliver on their job-creation pledges, and many don't hit the goal.
But promises to create or retain upwards of 50,000 jobs would get any governor's attention. In these tough times, no politician can afford to ignore a company that brings jobs to his state, or threatens to move jobs out.
But the issue raises two questions: Is this the best way to do it? And is it paying off?
Critics point out that many of the promised new jobs are never created and that many of the retained jobs would have been retained anyway. Illinois companies have come to realize that all they have to do is threaten to move some jobs out of state to win visits from government officials bearing gifts.
If 50,000 jobs is a lot of jobs, then $433 million is a lot of money. Could this have been better spent on venture capital to help new companies get off the ground, or to bolster start-ups, or to help small companies that want to expand, instead of lavishing the money on the likes of Morgan and Boeing? It's these small companies that are more likely to create jobs and keep them close to home, not the big global companies that account for most off-shoring.
The critics also point out that that $433 million could have paid for a great deal of infrastructure improvement and other public works, including education, that improve a state's business climate. In the long run, such spending would do than tax breaks to create jobs.
But no governor looks to the long run. Building new businesses from the ground up takes time and generates no immediate headlines. No governor ever got re-elected for laying the groundwork of a thriving economy 20 years hence.
But is this paying off? The Tribune series noted that Illinois spends $100 million per year through a tax reform aimed at creating manufacturing jobs. When the reform came in, its backers projected it would create 285,000 new manufacturing jobs. Instead, manufacturing in the state has shrunk from 800,000 jobs when the reform began to 600,000 now.
The backers say that, without the tax breaks, the erosion would have been worse. But it makes little sense to spend hundreds of millions of dollars to prop up a sector that is doomed to shrink.
The Tribune also noted that the majority of EDGE projects have gone to counties that saw an increase of 4 percent or more in unemployment between 2001 and 2011. OK, there's a recession on, and unemployment has been rising everywhere. The increase might have been worse without the EDGE payments. but clearly, these payments haven't solved any problems.
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The Times reported on a woman in Grand Rapids, Michigan, who signed up with a private company that supplies employees to a local veterans home under a state contract. The woman, Ginny Townsend, makes $10 per hour, about half the pay of the full-time public employees at the home. Now, it said, the state wants to fire 170 nursing assistants at the home and replace them with cheaper contract employees like Ms. Townsend.
As the Times said, this is becoming an increasingly popular ploy for governments facing budget squeezes. Prisons, parks, school cafeterias and sanitation departments are being outsourced to private collectors. Republican governors in states like Michigan have taken most of the heat on this, but the Times noted that Rahm Emanuel, Chicago's new Democratic mayor, has just outsourced recycling collection in parts of his city.
The Center on Budget and Policy Priorities just reported that, since the Recession began, state and local governments have cut 644,000 public-sector jobs, including 242,000 job cuts by school districts.
For governments, this sounds good, just like using tax breaks to create jobs sounds good. But again, does it really work?
The Times didn't say how much Michigan is paying J2S Healthforce Group, the contractor that employs Ms. Townsend. But such contractors don't work for free, and one can assume that much of the $10 per hour that the state saved by hiring Ms. Townsend has gone to her boss.
There's another problem -- the impact of this process on the economy. Ms. Townsend, at $400 per week, needs food stamps and other government help just to support her family. So, presumably, will the public employee she replaced, who now is unemployed.
All this is part of the decline of the American workforce and the growing gap between rich and poor. As we pointed out in an earlier post, the average public-sector worker in America makes $917 per week, exactly $200 more than than the $717 earned by private-sector workers. This disparity stirs considerable envy among private-sector workers against the public-service employees, many of whom are unionized.
But the solution is not to bring down the pay of the public-sector employees but to bring up the pay of workers in the private sector. As public sector workers lose protection, their pay inevitably will fall. This means that they, like those in the private sector, will have less to spend on groceries, clothes, cars and other consumer items -- the sort of spending that powers 70 percent of the American economy.
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Economists agree that the recession won't really end until consumers start consuming again. Cutting the wages of employees who are still earning a decent wage seems a bad way to make this happen.