Transportation and Minnesota’s Economic Competitiveness

Tom StinsonTom GillaspySeptember 2012

We Are Headed to a New Normal

• The Great Recession is over and the economy is growing -- but we will not return to where we once were

• We are moving to a New Normal• The U.S. is not alone -- it is happening globally• Those who recognize this and adapt first will be

most successful• The next four years will be critical

Minnesota Has Been Very SuccessfulEspecially For A Cold Weather State at the End of the Road

• Our economic growth rate has exceeded the national average

• Our population growth rate leads the frost belt• We rank with the leaders on many social and

economic indicators• Education has been a key contributor to the state’s

success

Minnesota’s Per Capita Personal Income Exceeds the U.S. Average by 7.2

Percent

• Minnesota ranked 12th in personal income per capita in 2011 - - - In 1960 Minnesota ranked 25th

- - - In 1960 per capita personal income in Minnesota was 95 percent of the U.S. average

• Personal income per capita grew at an average annual rate of 6.1 percent between 1960 and 2011. The national rate of growth was 5.9%

A Tale of Two EconomiesPer Capita Personal Income, 1960-2010

% of US Average

Minnesota’s Current Success Is Due to Decisions Made 50+ Years Ago

• Far sighted private sector and public sector decision makers established the foundation for growth in Minnesota’s economy

• Dealing with challenges brought by the baby boom was a key to our success

• Wise investments were made

Recent Economic and Demographic Events Have Changed the Outlook for

as Far as We Can See

This Recovery Has Been Slower Than Those in the Past

Convergence of Population Growth Rates

Census Bureau estimates, 2000-09 aligned with 2010 Census

Minnesota’s Population Will Continue To Grow Albeit At A Slower Rate

The Number Of Minnesotans Turning Age 65 Is Increasing Sharply This Year

Census ACS and counts and Mn State Demographer forecasts, the 2012 increase is 36%

More 65+ Than School Age by 2020

Census counts & State Demographer projection, revised Jan 2012

From 2010 to 2020, Minnesota Will See Large Increases Age 50s and 60s

20,15036,190

47,3305,050

-30,680-9,980

47,95061,920

-2,680-63,650

-42,31054,240

102,960112,540

91,37041,400

8,44016,500

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-84

85+

Source: Minnesota State Demographic Center, rev 2007Numbers are rounded

Annual Percent Change Minnesota Total Labor Force

Minnesota State Demographer forecast, revised January 2012

Gillaspy Demographics www.gilldem.com

Economic Facts of Life

Standard of Living depends on output per resident

Output = Output per Hour * Hours Worked

If the ratio of workers to residents declines productivity will need to increase if we are to maintain our current living standard

The Old Normal+ The Great Recession

+ Long Run Demographic Changes= The New Normal

The “New Normal” Probably Means• Labor and talent will be the scarce resources

• Slower economic growth

• A single-minded focus on productivity

• Higher interest rates

• A change in the land rent gradient

• Chronic government deficits & cuts in service

• Increasing numbers of retirees

• A more diverse population

• More uncertainty about the future

The Third Industrial Revolution Is Transforming Economic Activity

Advances in robotics, materials, software, bioengineering, and the web are fundamentally changing where and how economic activity takes place.Innovation is replacing physical capital as the foundation of economic growth.Physical location will be less important and those bound to it will find competition increasingly difficult.

WWW.GILLDEM.COM

Economic Fact of Life #2

• Productivity depends on – The stock of physical capital– The stock of human capital

• Education• Health status

– The stock of infrastructure– Advancements in technology

Productivity Is Not Just Producing at a Lower Cost

Increasing Productivity Also Means

Making things better

(improved quality)

Making better things

(innovation, new products)

Long term growth will require innovation and quality

improvements

Focusing Just On Reducing Costs May Be Short Sighted

The New 3 R’s for Economic Success in the 21st Century

RetentionRecruitmentRetraining

Transportation Systems and Competitiveness in the New Normal

Traditional Focus: •Markets for Minnesota commodities•Markets for Minnesota products and servicesExpanded View:•Transportation system as an amenity•Time cost of commuting a recruiting plus

Funding Transportation Systems Will Be a Challenge in the New Normal

• Seniors will be a greater percentage of the electorate– Issues of health care and aging will grow in importance– Tax increases will continue to be unpopular

• Current financing sources may not generate the revenue needed to meet future needs

• Traditional support groups may be less successful in gaining resources for transportation

The Fiscal Catch-22

If we don’t make the necessary public investments in human capital, research and infrastructure, then we won’t have the productivity gains needed to provide the resources to make those investments in the future