LONGWORTH: To a fault, Daniels focused on costs

Mitch Daniels will leave the governor’s mansion to a chorus of hurrahs from budget-balancers, conservative pundits and the Republican Party, which wishes—now even more than before—that he had run for president. But what can other Midwestern states learn from the Daniels era?

Not much, except that there’s more to governing than balancing a budget. This may sound like sniping from an envious Illinois, which certainly has its own problems. But Daniels clearly leaves behind a state that was in tough shape when he took over and is in worse shape now.

The evidence? It’s in the income and living standards of the people of Indiana.

According to the Indiana government itself, the state ranked 34th in the nation in 2001 in per capita income, with an average of $35,616. Ten years later, it ranked 41st, just above Alabama, with a per-capita income of $35,689.

In other words, in a decade that saw other Americans moving ahead, the average Hoosier improved his or her lot by exactly $7.30 per year. Granted, the decade ended with a terrible recession, but that downturn affected the other 49 states, too, and almost all did better than this.

If Indiana is becoming the Mississippi of the Midwest, the Daniels Era did nothing to stem the slide.

But considering the aura around the sainted Mitch, this doesn’t make sense. After all, his tenure saw not only a balanced budget, but a constitutional property tax cap, right-to-work legislation and some useful infrastructure. He consistently hyped Indiana as business-friendly, certainly more business-friendly than Illinois.

But a governor can be business-friendly and still lead a race to the bottom. All Midwestern states want more businesses. But the key lies in the kind of businesses they draw.

Some Midwestern states and cities, like Indiana or Cleveland, portray themselves as cheap places to do business, with low wages and low taxes. As a result, they will draw businesses whose only goal is to keep costs down.

These businesses are bottom-feeders, paying bad wages to relatively unskilled workers. The road to the top will be led by companies that can afford to locate anywhere and are willing to pay for what they get, like skilled and educated workers.

These companies will be involved in high-tech and high-end manufacturing, design and research, water solutions, green energy, medical devices. These are the industries of the future, and they require increased spending on education, closer ties between universities and business, a sophisticated work force. As Aaron Renn, the Indiana-born host of the blog The Urbanophile, has written, you can’t grow a life sciences industry these days without life scientists.

Businesses looking for nothing except low costs have already found them—in Mississippi, Mexico or China. Businesses worth having are willing to pay for smart workers, healthy cities, a good environment. If the Midwest as a whole is to recover its former vitality, these are the businesses it must have.

Some of Daniels’ new employees at Purdue University have been pushing this strategy—a true pro-business strategy—for years. Too bad he didn’t listen to them when it could have done some good.•

• Longworth is senior fellow at the Chicago Council on Global Affairs and author of “Caught in the Middle: America’s Heartland in the Age of Globalism.” Send comments on this column to ibjedit@ibj.com.