Central Indiana faces a variety of challenges in stemming corporate migrations
and attracting new and vibrant businesses.
By Norm Heikens
Indianapolis Star
July 23, 2000
Experts agree on this much:
Recent losses of several high-profile corporate headquarters in the Indianapolis area
mean the region will have to work that much harder to attract new business and keep
high-profile leaders.
It must solve education, traffic congestion and technology problems -- and fast, those
experts say.
Some aren't sure it can be done.
James Baker, retired chief of Arvin Industries in Columbus and a leader in education
reform efforts, isn't betting on it.
"Without good education, you don't have good, solid communities, and you don't have
good, solid businesses," Baker says.
But
David Audretsch [top], who directs Indiana University's Institute for Development
Strategies, argues, "Indianapolis is going to look real good in 10 years, because it will do the
right thing."
Central Indiana has been battered much of the year by out-of-state corporations
swooping in to snap up its biggest employers.
Arvin itself was bought in April by Meritor Automotive, a Michigan-based auto-parts
maker.
Then USA Group, the student loan administrator; Lilly Industries, which makes powder
coatings; and Central Newspapers, publisher of The Indianapolis Star, were sold.
Last week, Indianapolis Power & Light Co., a pillar in the city for much of the past
[page break
here/top] century, was acquired by AES Corp. of Virginia.
Like the string of bank acquisitions in the 1980s and '90s that stripped Indianapolis of
some of its marquee institutions, the recent buyouts have renewed debate about whether
central Indiana's economic engine can continue churning out prosperity.
It's a rare observer who predicts doom.
Then again, few bubble with expectation.
Dick Judy, a labor specialist at the Hudson Institute, an Indianapolis think
tank, summarizes the sentiment of many.
"My gut feeling is, we're at a crux," Judy says. "I'm guardedly optimistic. We have a
chance."
A STRONG RECOVERY
Projecting central Indiana's economic future requires a global view.
The industrial Midwest has rebounded handsomely from the 1980-81 recession that
shuttered hundreds of obsolete manufacturing plants and led to the coining of the term
"Rust Belt."
Today, restructurings and massive investment in technology have made the Midwest
among the most muscular manufacturing regions in the world, Bank One economist Diane
Swonk says.
Those changes have positioned the Midwest to keep pace with Europe and Japan when
they recover from their stagnations.
"We've learned how to move with that moving target," Swonk says.
Moreover, she predicts Japanese automakers will follow the lead of Toyota and continue
locating factories in the state, which in turn will undergird banks and other firms that rely
on manufacturing.
All the restructuring has caused paychecks to rebound.
Personal income in the nine-county Indianapolis area is 6.7 percent higher than the
national average, according to the Indiana Business Research Center.
That's a big improvement from the worst Rust Belt years of 1982-84, when income
dipped just below average.
The average wage in Marion County in 1998 was $36,460, placing it in the top 3 percent
of the nation's counties.
Health care employment has helped drive the recovery.
Elizabeth Thompson, a nurse at Methodist Hospital in Indianapolis, has enjoyed
continuing salary increases as health-related jobs flourished.
"It's just a very comfortable feeling," says the 18-year veteran. "You're not worrying
about cutbacks due to economic reasons."
Low-skill manufacturing jobs will continue shifting outside the country, says Graham
Toft, president of the Indiana Economic Development Council think tank.
Thomson Consumer Electronics, for instance, moved assembly of RCA televisions from
Bloomington to Mexico two years ago, eliminating 1,100 jobs.
But high-skill, precision manufacturing, such as Rolls-Royce Allison's 5,000-worker gas
turbine plant in Indianapolis, likely will remain in the region, Toft says.
Manufacturing and firms that feed on it churn out about a quarter of all goods and
services produced in central Indiana, Toft estimates.
Yet the economy will quickly soften if the region fails to address its educational
problems, traffic congestion and lagging transition to technology-based businesses, experts
warn.
All are critical to solving a looming work force crunch and stimulating the
entrepreneurial people desperately needed to start companies that can replace the lost
headquarters.
LOOKING FOR A HOOK
For all the sports complexes and cultural attractions launched in recent years, central
Indiana still is dogged by inherent drawbacks.
The region has dismal winters. And it has no mountains and few large bodies of water --
litmus tests for many younger, better-educated workers who value outdoor recreation and
breathtaking scenery.
Indianapolis officials turned the deprivation into a tongue-in-cheek joke a couple of
years ago at a technology summit Downtown.
Before boasting about the region's advantages, a wag superimposed Indianapolis' skyline
on a picture of mountains and flashed it onto a giant screen, drawing guffaws from the
audience.
It's a topic of hushed conversation among business executives and economic strategists.
"Many midsized cities in the Midwest are at a competitive disadvantage," says Indiana
University economist Morton Marcus. "I don't see it getting better unless they become very
attractive places to live."
Demographic trends accentuate the problem.
Central Indiana's work force is aging quickly. Baby-boom manufacturing workers will
begin retiring soon, and their white-collar peers soon will follow.
Immigrants are not flocking to replace them, and white, non-Hispanic birth rates remain
low, Judy says.
In effect, the region has exhausted its labor resources.
EDUCATION
Economic development experts rank education at the top of regional problems.
Forty-three percent of Indiana 10th-graders last fall flunked the state ISTEP
educational exam, which is based on ninth-grade standards.
Indiana students also score low on nationwide standardized tests. And a recent Hudson
study showed that affluent, suburban students score lower than students from similar
backgrounds in other states.
Education professors, though, rebut the study as statistics twisted by the conservative
think tank to cast a bad light on public schools.
Indiana also is among the last states to offer voucher programs, charter schools or tax
breaks to supplement pricey private school tuition.
Baker, the former Arvin executive, blames the Indiana State Teachers Association for
blocking reforms he favored. As a result, local youths aren't holding their own in an
increasingly competitive economy, he says, and young managers with children balk at
moving to the area.
Teachers union spokesman Mark Shoup says Baker's charge of foot-dragging is "not
factual."
"If we're going to survive, public schools have to survive," Shoup says. "We've been very
active in school improvement."
TRANSPORTATION
Traffic congestion, while still comparatively minor, is an approaching freight train, warns
Marcus, the IU economist.
A recent study ranked Indianapolis 40th in congestion, but noted the amount of time
motorists here were stuck in traffic soared 700 percent from 1982 to 1996.
That increase, from four hours a year to 32 hours, was the sharpest among the 70 cities
studied, according to the Texas Transportation Institute study.
Gridlock not only snarls commutes, it slows the movement of goods and impedes an
increasingly important component of the knowledge economy: face time between
white-collar clients.
The quandary is an irony. Even with the advent of the Internet and mobile telephones,
services such as consulting and many home-based businesses depend on meetings with
clients.
Those types of occupations may think twice about hanging shingles where their workers
can't briskly get from one place to another.
In other words, why would workers or business owners want to sit in traffic in central
Indiana when they could sit in traffic in Los Angeles or Atlanta and live in a warm climate?
TECHNOLOGY
Technology firms, with their fast growth and high-paying jobs, are less a quality-of-life
issue than an economic driver. Central Indiana isn't churning out big technology companies
as quickly as old-economy headquarters are leaving.
Investors are deserting manufacturers, insurers and other old-economy businesses
because they believe technology companies have better earnings potential.
The old companies, often small, figure they have little choice but to sell to please
investors and grow large enough to compete in a global economy.
Central Indiana has only two publicly owned software firms, and one, Made2Manage
Systems, is vulnerable to a takeover because its stock price is down 61 percent this year.
Last year, at a time when technology firms were kicking up their heels with initial public
stock offerings, Indiana produced none, according to Securities Data Co.
Though tech stocks retreated this spring, many entrepreneurs and investors made millions. They will plow some of that money back into new technology ventures, creating a
snowball effect.
Scott Jones, who made a fortune on voice mail technology and is a leading advocate for
technology growth in the state, says the industry is finally getting its sea legs.
"If we don't play now, we're going to get passed up," says Jones, who founded Escient, an
Indianapolis tech company. "Today's leadership needs to be oriented around getting a
bigger engine in the economy so we can go places."
Bank One's Swonk sees vast potential for technology to boost central Indiana's heavy
industry.
"The ultimate power of the Internet is how it is applied," she says. "The ultimate test
case is industry."
There are encouraging signs. The state, for instance, recently earmarked $50 million for
technology companies.
Yet critics say community leaders continue to cross their fingers and passively hope for
more branch plants.
"We're looking outside for solutions rather than looking inward," said
Audretsch [top], of the
Institute for Development Strategies.
Hudson Institute's Judy is disgusted with Purdue and Indiana
universities' failure to spin off more new companies with technology they develop. Officials from both schools
defend their track records.
At a time when other universities are throwing support to entrepreneurial ventures and
making millions of dollars in royalties, Purdue and IU still fear a conflict of interest if
professors divert time from research and teaching to start companies, Judy says.
"What we're dealing with is a cultural problem deeply embedded in faculty and
management of those institutions," Judy says.
THE FUTURE
Other cultural traditions might work to the region's advantage.
Mike Lawson was attracted to Indianapolis by the nationally renowned cooperation
between business and government.
The new president of the Indianapolis Economic Development Corp. says he wants to be
part of the so-called public-private partnership and its reputation for solving problems like
Downtown blight.
"I'm extraordinarily excited about this market," Lawson says.
Most observers aren't so effusive.
"The Rotary Club answer is, sure, we're going to create new businesses here and we'll
create our own corporations," says Bill Sheldrake, president of the Indiana Fiscal Policy
Institute. "That answer is not entirely to be discounted."
But, he adds, "I'm not blind to the challenges."
Residential developer George Sweet still is disillusioned with his attempt to persuade
area politicians to think regionally.
The Metropolitan Association of Greater Indianapolis Communities disbanded last year
after its four-year charter expired.
"We don't have a decent economic development strategy," Sweet says. "We're
complacent."
Marcus, the IU economist, says facing the challenges honestly will pay dividends.
"We will continue to struggle a bit, but it's a winnable situation," he says. "I'm not selling
my home." Economic development experts say Indiana must solve education, traffic
congestion and technology problems quickly. Not many observers are predicting gloom and
doom, but few are bubbling with high expectations.
Copyright 2000 Indiana Newspapers Inc.
|
