Race to the bottom creates winners, losers

  • Article by: ERIC WIEFFERING , Star Tribune
  • Updated: January 4, 2011 - 8:46 PM

For most Minnesotans, Osceola, Wis., is a place to stop for a burger or gas on our way to or from somewhere else.

More recently, though, the quaint rural village perched atop the bluffs of the St. Croix River has become a microcosm for the global economy.

Polaris Industries, the Medina-based recreational vehicle maker that has operated in Osceola for 19 years, announced in May that it will close its plant and shift operations to Mexico. The layoffs begin in March, and eventually the region will say goodbye to 500-plus jobs that pay an average wage of about $16 an hour, plus benefits.

Polaris is only the latest blow to descend on Osceola. Another manufacturer, the former UFE Inc., went bankrupt late last year and left Osceola, and a playground equipment maker departed in March.

For decades, western Wisconsin feasted on Minnesota firms looking for cheaper places to set up shop. The Badger State dangled lower rates for everything from corporate income taxes to workers' compensation. State development officials also aggressively merchandised various tax credits, including 23 business income tax credits available to individuals who own or invest in a Wisconsin firm.

For a long time, it worked. Manufacturing plays an outsize role in the economy of this part of Wisconsin, where it accounts for almost 26 percent of all private-sector jobs in Polk County, versus 22 percent statewide and 14 percent in Minnesota. Between 1999 and 2009, when Minnesota and the rest of Wisconsin were losing manufacturing jobs, Polk County actually added about 100.

Economists have long decried this type of cross-border competition. One study after another has demonstrated that states -- read taxpayers -- end up paying a steep price for relatively few jobs. Inevitably, the neighboring state sweetens its incentives and conducts a raid of its own. The net result: A lot of taxpayer money wasted just to maintain the status quo.

Witness the fight for Xccent, a playground equipment manufacturer that left Osceola in 2010, taking 100-plus jobs across the river to Minnesota, where it was the happy recipient of a $150,000 grant from the much-maligned JOBZ program.

And, as Polaris illustrates, Wisconsin no longer competes against only Minnesota and other border states for high-paying manufacturing jobs. In a global economy, there is never a shortage of countries willing and able to offer a deep pool of cheap labor. Polaris says it will pay its Mexican employees a third of what it pays employees in Wisconsin, saving $30 million annually.

It's tempting, but ultimately pointless, to fault Polaris, which got its start building snowmobiles in Roseau. Its rivals are already in Mexico, and its customers around the world care much more about quality and price than where something is made.

Still, Polaris' departure will create a big hole in Polk County, where it is the largest private employer. Its workers come from about 56 ZIP codes, and businesses from cafes to child care centers are bracing for the impact.

"The impact won't be in just Osceola," said Village President Kathy Demulling, whose daughter-in-law works at the plant. "There are a lot of communities that will suffer from this."

On Monday, Polaris announced it had sold some of its Osceola operations to another company, which plans to hire up to 60 people. Meanwhile, a regional task force has set a goal of finding 600 jobs within the next three years.

Replacing those high-paying jobs will be tough, acknowledged Steven Healy, executive director of the Polk County Economic Development Corp.

"As a community, we recognize that manufacturing jobs are going to be very difficult to replace," Healy said. "We're trying to refocus on the types of businesses that we recruit, such as technology and startups."

That will include making recruiting calls on Minnesota companies looking for a cheaper place to do business, Healy added.

ericw@startribune.com • 612-673-1736

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