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A State of Denial?
By Bill Catlin
September 19, 2000
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The University of Minnesota is sponsoring a summit to discuss Minnesota's future in a global, technology driven economy. The summit occurs in the midst of a vigorous debate about whether Minnesota is thriving or falling behind. Experts assessing the future of Minnesota's economy disagree over whether there's doom or zoom.

BY ONE VIEW, knowledge-driven, high technology industries like software, medical technology, and telecommunications, are key to economic success. One of the leading proponents of that view is Ross Devol, from the Milken Institute in California. Devol says regions that lack a growing high-tech sector will be left behind.

"It is playing such a large role in determining how well we're doing, not only as a nation, but how regions of the country are performing," Devol says.

More Information
What is Minnesota's future in a global economy? Hear MPR's Andrew Haeg's report. (Listen)

Hear a discussion on MPR's Midday about Minnesota's economic future. (Listen)

Gov. Ventura gives summit participants a pep talk on globalization. (Listen)

Summit Web site

Minnesota economic statistics

Minnesota in the Dot-Com Age
Devol issued a study last year ranking the Twin Cities 32nd in high-tech economic output. Rochester ranked 16th. The Twin Cities' low ranking, in part, reflects the eclipse of Minnesota's strength in mainframe computers by the PC and the Internet.

In a more recent study, Devol ranks Minnesota in the second or third of four tiers in most of 13 categories affecting high-tech economic growth. Devol says high-tech industries will determine an area's economic success because they're powerful growth engines.

"Growth in high-tech industries has averaged somewhere between 20 to 25 percent per year, while the overall economy has been averaging close to four percent," he says.

It's not just an academic debate. What's at stake is the size of paychecks, among other things.
By one estimate workers in industries producing information technology earned an average of $55,000 in 1998, 45 percent more than employees in IT-using industries.

In Minnesota, a number of high-profile voices are raising concerns about Minnesota's future in an economy driven by innovation, pointing to a declining share of national venture capital since 1995, and middling rankings for public stock offerings and new company growth.

But others say Minnesota's economy has great strength regardless of its status as a high-tech center. Economist Arthur Rolnick of the Federal Reserve Bank of Minneapolis, says one of the state's assets is the breadth of its economy.

"The envy of many other communities that would like to have this kind of diversity so that you don't feel the economic shocks if a particular company should fail," Rolnick says.

In Rolnick's view, even if the state's reputation as a tech center has eroded, the economy has done anything but. Minnesota has a very low unemployment rate; personal income grew faster than the U.S. as a whole over the 1990s, boosting the state's ranking for personal income from 16th to 10th. And Rolnick says Minnesota has a high-quality workforce with a strong work ethic. He argues that's the key factor in economic prosperity, not high tech.

"It doesn't really matter which particular industry it is; we do well at what we do," he says. "It's tough to anticipate the next hot industry. In the past we did well with supercomputers. Currently we're doing well in the medical industry. Right now in other parts of the country, it may be high tech, I don't know that that's going to continue for five or 10 years."

Both sides marshall strong arguments for their views, and the disagreement extends to the high-tech sector itself. "Our preference is to grow here in Minnesota. The issue simply is, there are not enough high-tech workers here," says William Cadogan, CEO of ADC Telecommunications, a telecomm and information-technology firm, and one of Minnesota's rising tech stars.

In five years, ADC's global workforce has grown sixfold to more than 20,000. The company has deep roots in the Twin Cities. But Cadogan says the company's loyalty to Minnesota was not enough to overcome the realities of the state workforce.

"Unfortunately, ADC had to take a very painful decision about two years ago to relocate one of our divisions based here in Minneapolis down to Dallas," he says. "There's just not enough high-tech workers, again, engineers, software developers, to support that key initiative."

The Dallas operation now employs around 300, but Cadogan says the move will cost Minnesota 2,000 jobs over the long term. But not everyone agrees the situation is that grim.

"What we've got is good engineers. Guess what they're out of in Silicon Valley? Engineers," notes Mac Lewis, a former tech company CEO-turned-venture-capitalist. Lewis thinks Minnesota definitely has some catching up to do, but his firm, Sherpa Partners, is raising $40 million or more from investors - money to bet on emerging Minnesota technology firms.

One of his selling points is Minnesota's stable, technology-oriented workforce. Lewis points out computer networking giant Cisco Systems this year cemented a partnership with one Minnesota firm and snarfed up a local start-up for almost $500,000.

He says other West Coast tech firms are prowling the state.

"They might like the product, but what they love to see is a group of engineers working together that they can put to work on market opportunities that they're trying to develop," says Lewis. "We're seeing companies outside of Minnesota falling in love with our engineers and the talent we have here, to build some new companies."

And that's not all. Minnesota's software industry has mushroomed. Government data suggest Minnesota's industry has grown nearly 250 percent since 1988, 43 percent more than the national average.

"I knew that the software industry had been growing in Minnesota, but I didn't believe it was growing that much more than the national averages," says state economist Tom Stinson.

The portion of Minnesota's workforce in software is close to California's. Minnesota's employment in high-tech industries is slightly higher than the national average. (See chart) Even so, Stinson says, there are clouds.

"We don't have a particular advantage in terms of the number of high-tech professional workers, and that's a concern," Stinson notes.

Stinson says engineers and scientists are more likely to generate the ideas that can spawn new companies.

Warren Sheaffer is helps his computer programming students through a problem at St. Paul Technical College.
(MPR Photo/Bill Catlin)
Just about everyone agrees on the need to ensure Minnesota has a skilled workforce. Stinson says that will be the key challenge, requiring more focus on existing workers, and accommodating more immigrants.

Warren Sheaffer is helping his computer programming students through a problem at St. Paul Technical College. Most have jobs and about half are from foreign countries. But Schaefer says technology poses the greatest challenge.

"The disadvantage that our students have linguistically, say from foreign cultures, is secondary to the challenge that we face as students and faculty, keeping up with the changing hardware and software. We're all struggling with that," Sheaffer says.

Keeping the workforce up to speed with technological change may be a huge challenge, but Ross Devol of the Milken Institute says it's not the only one. He says strong regional economies require a top research institution, that also has a pipeline for moving ideas from the lab to the marketplace.

Lyle Wray of the Citizens League agrees, but he adds one more consideration: an aversion to complacency. Wray says the statistics indicate cause for concern, not panic. But he points out many other states have launched large scale and heavily funded programs to boost the development of high-tech industries. Minnesota, he says seems rudderless.

"Complacency is probably worse than any single thing," Wray says. "You begin to disregard and deny warning signs. And in Minnesota we've been told we don't have gangs, we've been told we don't have all kinds of problems around here, until it hits us over the head with a brick. And I think that kind of complacency and denial tendency is very dangerous."

The trick, says Wray, is promoting a sense of urgency when times are good. He hopes one will emerge from the university summit.