12/21/98

KUFM/KGPR

T. M. Power

Boosting Manufacturing as a Way to Boost Average Incomes

One of the primary objectives of the economic development plans being discussed by the Governor and Legislature is to boost average incomes in Montana. Over the last 20 years, real average incomes in Montana have risen fairly consistently but not as fast as the national average. As a result, a gap has opened between Montana and the metropolitan-based national average. The Governor proposes to close that gap by expanding the amount of high wage manufacturing that takes place in the state.

One interesting aspect of Montana’s slippage relative to the nation is that over the last 20 years the same slippage took place in all of the Western states except Colorado and Washington. Idaho, Utah, Arizona, Wyoming, and Nevada all saw their average incomes slip significantly relative to the nation. The same was true in California, Hawaii, and Alaska. Interestingly, this slippage took place while the West was the fastest growing region in the nation. Rapid rates of economic growth apparently do not assure relative improvements in average incomes.

One can look at the experiences of other Western states to get a feeling for how boosting high wage manufacturing jobs might affect average incomes. One of our neighboring states, Idaho, has been dramatically successful in transforming its economic base from one dependent upon mining, metals, lumber, and agriculture to one now relying heavily upon high tech industries in the Boise and Coeur d’Alene areas. Over the last 25years Idaho was able to buck the national trend and actually see the share of total earnings being derived from manufacturing rise. This increase in manufacturing earnings was led by the steady expansion of high tech manufacturing which by the early 1990s surpassed wood products, not because wood products was declining but because high tech manufacturing was growing so rapidly.

The industrialization of Idaho has been impressive. At the end of the Second World War, manufacturing in Idaho played only a fifth of the role it did in the national economy. By the mid-1990s manufacturing was more important in Idaho than in the nation. In that sense, Idaho succeeded on a spectacular scale in doing just what the Governor now proposes for Montana.

Before jumping on that bandwagon, however, one has to ask just what this successful industrialization has done for relative incomes in Idaho. Did average incomes also rise spectacularly as all these high-wage manufacturing jobs were added to the Idaho economy?

The answer is not at all. As this industrialization was taking place in Idaho, average incomes were falling relative to the nation. Before the industrialization got underway 50 years ago, Idaho’s average income was exactly at the national average. As that industrialization proceeded, average incomes relative to the nation declined steadily until by the mid-1980s they were almost 25 percent below the national average. Relative incomes in Idaho have recovered somewhat during the 90s; now they are only about 20 percent below the national average. That, by the way, is approximately where Montana’s average incomes are too.

Thus, after succeeding in industrialization and the attraction of high tech manufacturing on a scale that Montana cannot hope to duplicate, Idaho average incomes are about where Montana’s are. This certainly raises some doubts about the efficacy of the route that the Governor has proposed for boosting Montana incomes relative to the nation.

Idaho is not unusual in this regard. Instead, one could have looked at Utah. The story is the same: Average incomes 50 years ago in Utah were above the national average. Heavy industrialization raised manufacturing as a source of earnings from 30 percent of the national average to 85 percent of the national average. Meanwhile average incomes fell relative to the national average and now are almost identical to average incomes in Montana.

If one does not want to look at adjacent states, one could look instead at California. Over the last 50 years it became almost completely a metropolitan state with a significant part of the nation’s manufacturing base. High tech originated there and continues to be centered there. Over those fifty years, average incomes relative to the nation steadily declined, losing almost 25 percent. California began way above the national average and after all of the California dreaming, now has fallen to about the national average.

These examples suggest that the relationship between average incomes and industrialization, even high wage industrialization, is much more complex than suggested by the slogans currently being tossed around the state under the guise of economic analysis. It may be that Montana cannot get to where we are being told we ought to go. If we could turn all of Montana into a highly industrialized, but also congested and polluted, Wasatch Front, Utah’s experience tells us that our average incomes might not move one single dollar. We and the state we love, however, would surely be worse off. How far in this direction do we want to go in the name of economic development?