Business forum: Most solutions create other problems

Now that Minnesota has grappled with yet another budget crisis, it is appropriate to remember Russell Ackoff's famous caveat from his notable book "Redesigning the Future'':

"No problem exists in complete isolation,'' Ackoff writes. "Every problem interacts with every other problem and is therefore part of a set of interrelated problems. ... Solutions to most problems produce other problems; a financial problem, a maintenance problem and conflict among family members for its use."

As legislators adjourned last week, I could not help wondering how Minnesota's problems are interrelated and what adverse side effects are being created as a result of actions taken.

Though Minnesota continues to look better than some other states on selected statistical measures, our state no longer enjoys the distinctively robust economy of decades past. Minnesota's March unemployment rate was lower than many states at 5.4 percent, but not better than several nearby states such as Iowa (4.9), Nebraska (3.8), South Dakota (4.3) and North Dakota (3.3).

Minnesota's 12-month change in manufacturing employment, a bellwether of future economic strength, is rather anemic at two-tenths of 1 percent. Manufacturing employment in Kansas grew at 1.5 percent; Nebraska, 2.2; South Dakota, 2.5; and Wisconsin, 1.9. On May 16, the Star Tribune reported that Minnesota lost 11,400 jobs in April.

Minnesota has many favorable attributes, but we are not at the stage where we can rest assured that our economy will be restored to full health.

The Minnesota ­Legislature, our national government, and the Federal Reserve all make a false assumption that our economy is the same way it was in former years and that cyclical prosperity can be restored by stimulative spending and low interest rates. Though there are some brighter spots, our economy is not the same.

Minnesota's economic growth rate has tailed off in recent years as our influence in major industries has waned. We no longer are pre-eminent in computers or instruments. Northwest Airlines and Republic are gone. Honeywell and IBM are both smaller. Gone, too, are Lockheed Martin and the Ford plant, among others.

Along with other governmental units, Minnesota has the questionable habit of dancing around problems without really solving them. Take, for instance, the unfunded liabilities of the state's public pension plans — reported as more than $12 billion last June.

But with the new Government Accounting Standards 67 and 68 taking effect shortly, that liability is probably more like $20 billion. Only about 20 percent of employees in private industry have pensions, and many people wonder how this enormous public bill can ever be paid. A plan to pad pension funds with a tax on the auto and personal insurance policies of all Minnesotans, few of whom benefit from the generous and early retirement benefits of public workers, was dropped as the Legislature rushed to adjourn.

When journalist Dave Beal and I did an extended study of industrial strength and relocation leading to the book "Manufacturing Works: The Vital Link Between Production and Prosperity,'' we found that both repelling and attracting forces influence the relocation of industry.

Repelling forces include shortages of land, the movement of major customers, the objections of residents and the unavailability of competent and dependable labor. Attracting forces include such factors at potential locations, the proximity of major customers, the perceived local work ethic, transportation advantages, and legislative, legal and tax climates perceived to be favorable.

Many, perhaps most, of Minnesota's pre-eminent manufacturers and businesses are loyal to our state and strongly desire to stay here. But others are influenced by shifting markets, the unavailability of capable labor and differentials in the cost of operating. Ironically, Minnesota's best companies and most generous employers often are faced with the most opportunities to expand elsewhere. So, in the long run, the outcome of Minnesota's current efforts to remedy its fiscal problems from the revenue side are quite unknown.

Elected officials should recognize that budget balancing does not exist in isolation. Budget deficits occur mostly because vibrant private industry is underappreciated as the principal driver of prosperity. It is a mistake to jeopardize our future with poorly-thought-out programs where the impacts are not understood.

About the author: Fred Zimmerman is professor emeritus of engineering and management at the University of St. Thomas. He has served on the boards of directors of several corporations. His e-mail is zimco@visi.com.