David S. Dahl - Regional Economist
Edward Lotterman - Agricultural Economist
Published July 1, 1994 | July 1994 issue
"When you live in a time of change, the only way to
recover your security and to broaden your horizons is to adapt to change,
to embrace it, to move forward."
President Bill Clinton, NAFTA Side Agreement Signing Ceremony,
Sept. 14, 1993.
Economic change is impacting La Crosse, Wis., a community of 51,000, 150 miles southeast of Minneapolis/St. Paul. Low inflation and interest rates have had a substantial impact on the community, according to 70 percent of La Crosse's 42 business leaders responding to an early April poll for Fed Focus: La Crosse. Many respondents also see health care costs and information technology having a substantial impact, and 30 percent note that increasing globalization is having a substantial impact.
Economic change, however, has not kept La Crosse, as well as other Ninth District large communities, from prospering. Minnesota, the Dakotas and the Ninth District portion of Wisconsin contain 11 MSAs (metropolitan statistical areas). These communities are the focal point for much of the region's economic change, and between 1983 and 1993 all of them, except Duluth/Superior, exceeded the nation's growth rate. La Crosse grew at 2.5 percent annual rate during this period.
Economists have identified a number of paths that communities can take to adapt to change, and two help explain La Crosse's recent growth. One path emphasizes specialization in a particular industry. Within the Ninth District, for example, Minneapolis/St. Paul specializes in producing computers and medical technology, and Sioux Falls in meat packing and processing credit card transactions. Some geographic specialization comes from natural resources and transportation advantagesDuluth/Superior's specialization in iron mining and waterborne shipping, for example.
Another reason is what economists term localization economies; firms in the same industry tend to cluster, for example, so they can use common suppliers and share the same labor markets.
Localization economies are one reason behind the health-care industry's consolidation into larger units and its geographic concentration. Part of the health-care industry's rapid growth stems from the establishment of Medicare; and La Crosse's growth in health care earnings accompanied the expansion in Medicare outlays.
With two large hospitals and two large clinics, specialization in health care contributed to La Crosse's recent growth. Health care accounts for about 14 percent of La Crosse's total wages and salaries as contrasted to 7 percent 30 years ago.
Although communities recognize the advantages of specialization, they also know it is unwise to put all their eggs in one basket. "Industries fare better in highly diversified cities than in one-industry towns because companies can learn from customers, suppliers and even unrelated businesses," according to a NEW YORK TIMES article about recent research in regional economics. La Crosse has been diversifying: In 1963, one in three non-farm workers were in manufacturing; now the number is closer to one in five.
Moreover, La Crosse business leaders support policies that should allow the community the flexibility to continue to diversify. Seventy-two percent of respondents feel developing La Crosse's infrastructure and labor force is very appropriate. Sixty-three percent view providing financial and technical support to local firms as very appropriate, and 56 percent say using tax breaks and other financial incentives to entice new business is very appropriate. Forty-two percent consider seeking high technology industries as very appropriate. Only 33 percent view emphasizing low taxes as very appropriate.
The favorable economic conditions that most La Crosse business leaders foresee should assist the community in its efforts to continue to diversify. Since the end of World War II real gross domestic product, the nation's output of goods and services adjusted for price changes, has increased at a 3 percent annual rate, and over the next year 51 percent of respondents expect average growth and another 35 percent see growth advancing somewhat faster than average.
Since 1982 the consumer price index has risen at a 4 percent annual rate, and over the next year 63 percent of La Crosse business leaders look for an average increase in price and another 30 percent see prices increasing slower than average.
Likewise, they are optimistic about the prospects for the La Crosse economy. During the next year, 60 percent or more of respondents look for La Crosse's business investment, consumer spending, housing starts and employment to increase.
Furthermore, this optimism carries over to their own businesses as 79 percent see their own firms' sales increasing from a year ago and 62 percent plan to increase investment in plant and equipment.
If La Crosse is to continue to prosper for the remainder of the 1990s, the community business leaders feel there are a number of issues that must be addressed. More than 60 percent of respondents said coordinated development by local governments, public education, city/state taxes, access to funds, infrastructure and labor force are very important issues in La Crosse.
As La Crosse addresses these issues and continues to respond to change, the community should continue to prosper, for the prospects for economic growth are "the best in decades," according to Federal Reserve Chairman Alan Greenspan at a recent congressional hearing.
Fed Focus is a Minneapolis Fed initiative to integrate programs for bankers, educators and community leaders into a one-day conference. The first such program was held in La Crosse, Wis., April 29, 1994.
Three concurrent seminars were held: "Community Development Lending" for bankers and community development officials, "Bringing the Banking System into the Classroom" for educators and "Business Solutions Through Electronic Payments" for bankers and business people. Also, Art Rolnick, senior vice president and director of research, Federal Reserve Bank of Minneapolis, spoke to students and faculty at the School of Business Administration, University of WisconsinLa Crosse, about current issues in central banking.
Gary Stern, Minneapolis Fed president, addressed seminar participants on "Prospects for Long-Term Growth." Following his address was a presentation on "La Crosse's Prospects in a Changing Economy," which focused on how La Crosse and other large Ninth Federal Reserve District communities adapt to change, including the results of a poll on how La Crosse area business and community leaders view their community.
Fed Focus also enabled the Minneapolis Fed to become better acquainted with La Crosse and strengthen its ties to the area. Russ Cleary, president, Cleary Management Corp., and Duane Ring, chairman, president and CEO of Norwest Bank La Crosse, N.A., are former directors of the Federal Reserve Bank of Minneapolis, and Jeanne Davison, owner, Butterfield Farms, from across the river in Hokah, Minn., currently serves on the bank's Advisory Council on Small Business, Agriculture and Labor.
The Fed Focus program was organized with the help of the La Crosse Area Chamber of Commerce, the La Crosse Area Development Corp. and in particular the School of Business Administration and Center for Economic Education at the University of WisconsinLa Crosse.
The Minneapolis Fed, in conjunction with the School of Business at the University of South Dakota in Vermillion, plans to conduct another Fed Focus in Rapid City, S.D., this fall.