Business leaders in Minnesota Seeking to make Regional Economic Development a Priority

Gov. Tim Pawlenty has already made economic development a priority for his administration — no surprise for a governor trying to pull his state out of a financial thicket. But in a break from past years, much of the impetus for a reshaped economic development policy is coming from the private sector.

By:
Mark Reilly, and Andrew Tellijohn
Minneapolis St Paul Business Journal

Influential business leaders, including Minnesota Wild president and Minneapolis Regional Chamber of Commerce Chairman Jac Sperling and Wells Fargo Bank Minnesota President Jon Campbell, have stepped up efforts to spur economic growth, seeking to emulate business-driven successes in cities such as Denver and St. Louis.

Supporters hope that the efforts will lead to an economic policy that recognizes Minnesota as a region instead of a collection of interests championed by separate, competing groups.

"This isn’t about Minneapolis competing with St. Paul," Sperling said. "This is about competing with St. Louis and Berlin and Tokyo, and business has to play a role."

Why now?

Some observers note that it’s no coincidence that the flurry of activity on economic development comes as the state is facing a fiscal crisis. Minnesota is facing a $4 billion budget deficit, and the economic engine that drove growth in past years has sputtered.

Economic development is clearly a favorite subject for Pawlenty, who speaks frequently on the topic and recently toured the state with Trade and Economic Development Commissioner Matt Kramer, stumping for a proposal to create tax-free business zones.

"It’s an exciting period to be interested in this subject," said Kramer. "This subject is going to get a lot more attention under this administration."

But Pawlenty has conceded that some of his development plans would be forced into the background by the state’s budget crunch.

Sperling and others argue that it is time for businesses to resume leadership on economic development issues — a task they largely surrendered to government decades ago.

"In the current environment, with the government concentrating more on providing basic services, it’s time for the private sector to take a more active role," Sperling said. "The governor has his hands full."

The state’s economic woes may have helped prompt other business leaders into action, said Michael Gorman, managing partner at Eden Prairie-based St. Paul Venture Capital and a member of a business group seeking a regional, private-sector economic development push.

"It’s a matter of necessity being the mother of invention," Gorman said, adding that when Minnesota was outperforming the nation’s economy in the 1990s, there was little incentive to think about economic development.

Things are different now, said Bill Blazar, senior vice president of the Minnesota Chamber of Commerce. The state needs a vibrant economic development strategy to keep pace, he said. "More and more businesspeople and policy-makers are understanding that we are in a world economy that is rapidly changing."

The Minnesota Chamber is among the most vocal of private-sector groups pushing for a more prominent role in development issues, launching a plan to manage marketing and business-retention tasks for Minnesota, jobs now handled by the state Department of Trade and Economic Development (DTED). The venture would be privately funded and has drawn the support of Wells Fargo’s Campbell, who recently agreed to help finance it and recruit additional investors. He could not be reached for comment.

Campbell next month will host a dinner for business leaders to promote the Minnesota Chamber’s plan.

It isn’t clear whether the chamber program would replace the existing DTED role or supplement it. Kramer has said that the state still had a responsibility to lead such efforts, though he welcomed the private sector’s help.

Another impetus for private-sector alternatives could come from the personalities involved, especially from executives coming to Minnesota from other states where businesses have a more prominent role in economic policy.

"It’s something I noticed when I came to Minnesota," said Sperling, who has lived in Denver. "It’s done [with private-sector leadership] in many other cities around the country, and it’s been successful in the creation of quality, private-sector jobs."

Sperling participated in a fact-finding trip last year to study private-sector development success stories in Denver, where business groups and local governments teamed to install a light-rail system, attract a baseball team and promote the region as a medical-research hotbed.

"The Denver trip, I think, was a precipitating event," said Rip Rapson, president of The McKnight Foundation, Minneapolis. "That group saw a very different model and came back wanting to do something."

Will history repeat?

This isn’t the first time Minnesota leaders have tried to kick-start a new economic-development initiative. But previous attempts have had mixed results and little long-term impact.

The Summit on Minnesota’s Economy, called by the University of Minnesota in 2000, drew large crowds and generated plenty of debate. A panel convened after the summit to offer concrete policy changes, but lawmakers ignored most of its recommendations.

Many observers of past attempts say that the problem is not a lack of attention. Besides DTED, there are more than a dozen organizations — ranging from chambers of commerce to industry groups to nonprofits — that have some development mission. But these various groups rarely coordinate programs with each other, and some compete for members and projects.

"Minnesota has tended to do a lot of scattered things when it comes to economic development," said Jacques Koppel, president of Minnesota Technology Inc.

For that reason, another organization — composed of leaders such as Gorman and Rapson, and informally called the Itasca Group — is trying to avoid a public role. Rather, the group is working behind the scenes with existing organizations, such as the Minneapolis Regional Chamber, to promote the idea of a regional economic strategy. (Lisa Bormaster, publisher of The Business Journal, is also a member of the group.)

"We need to go beyond geographic silos," Gorman said.

Noisy neighbors

The lack of such a regional outlook, some argue, has caused Minnesota’s economic strategy to lag behind states such as Michigan or Wisconsin, which compete for company relocations and expansions. The governors of both North and South Dakota also actively woo Minnesota companies through ad campaigns and personal visits.

Sioux Falls, S.D., aggressively pursues Minnesota businesses, said Dan Scott, head of the privately funded Sioux Falls Development Foundation. The city uses a $150,000 marketing budget that, for a city of 131,000, is far larger on a per-capita basis than the $450,000 Minnesota spends marketing the entire state.

In contrast, Michigan has an economic-development marketing budget of $5 million.

Scott said Sioux Falls’ development, which has been a coordinated project by business and political leaders, has led to several investments in the area by companies such as Minneapolis-based Graco Inc.

"One thing I don’t think Minnesotans understand is how much business they’ve lost that they never noticed — companies that invest in [Texas] instead of there," Scott said.

In Michigan, too, the state’s policy has been helped by a concerted effort by the private sector, Blazar said. Minnesota business leaders are studying those tactics to recreate them here. In terms of private-sector involvement, "to a certain extent, we might be playing catch-up," Blazar said.

But strong government leadership is essential, said Paul Krepps, a spokesman with the Michigan Economic Development Corporation, who credited Gov. John Engler with spearheading work on tax-free zones and other strategies.

If economic development is not a priority, Krepps said, it is "not going to get priority funding and it’s not going to get priority exposure."

Koppel, of MTI, said a similar mantle will likely have to be borne in Minnesota by Pawlenty. "I don’t know of very many other people who could fill the role."

Not all parties agree. The Minnesota Chamber, in its bid to build a business-retention program, argues that businesses are best led by other businesses. Said Gorman: "The private sector needs to take the lead role in defining this mission," he said.