Growth would solve our problems

The most frustrating aspect of the state's three-week government shutdown was that Minnesota's future seemed to hinge on one of two choices: Cut spending or raise taxes.

What we desperately needed was a third option, an ambitious, long-term vision to restore economic growth. It might have included some tax cuts. It might have called for eliminating some unproductive tax breaks. And it most definitely would have required long-term, strategic investments that eventually would have rebounded to all state residents.

Unfortunately, lawmakers in Washington seem headed down the same dead-end tunnel, even while the nation's unemployment rate is stuck above 9 percent and the number of people who've been out of work six months or more remains at an all-time high.

Economic growth -- more jobs, increased productivity and higher wages -- is the surest salve for most economies. Growth explains how both Minnesota and the federal government were able to run up budget surpluses during the 1990s. The lack of growth in the ensuing decade, meanwhile, is a big reason why states and the federal government are trying to dig themselves out of billion- and trillion-dollar holes.

Minnesota's job numbers are a stark example of how swiftly expectations can go from great to greatly diminished. Between January 1990 and December 1999, the state added 530,000 net jobs. In the following decade, we experienced a net loss of 22,000 jobs.

Naturally, a lot of those jobs were lost during the Great Recession, so it's inevitable that many of them will come back, right? Not necessarily.

First, many midsize and large American companies are doing most of their hiring abroad, which is the source of an increasing share of their profits.

Through the '80s and '90s, new businesses typically created 3.5 percent of total U.S. jobs annually. That number may not sound big, but researchers E.J. Reedy and Robert Litan for the Kauffman Foundation say it's the difference between positive and negative overall job growth.

Beginning in 2000, however, that share of job creation slipped a gear, to 2.6 percent. The difference: about 1 million jobs a year. The drop occurred before the recession hit, and shows no signs of letting up for two reasons:

•Fewer new businesses are being formed. (Note: The Kauffman Foundation research focuses on businesses that employ others besides the owners).

•Those businesses are hiring fewer people. In the 1990s new businesses opened their doors with about 7.5 jobs on average, compared with 4.9 jobs today. Technology has replaced some of those jobs, but start-ups also rely increasingly on contract or temporary workers rather than new hires.

The paper's authors don't spend much time discussing the possible causes for these declines, such as financing, free trade or the consequences of shipping jobs overseas.

Whatever the causes, the implications are profound because new businesses are widely seen as being responsible for the net increase in new jobs each year. Without new jobs, you have no growth.

Go to North Dakota if you want to see what a difference growth makes. It added 61,000 jobs in the decade that ended last year. The number of jobs grew at a faster rate than the state's population, and helped push North Dakota's per capita income from 38th in the nation to 17th. North Dakota has the lowest unemployment rate in the country, at 3.2 percent, and, not surprisingly, a budget surplus of $1 billion.

Some will seize on the fact that North Dakota's tax rates are generally lower than Minnesota's, but let's not forget that our job growth sputtered after the Legislature began cutting income tax rates more than a decade ago. If anything, North Dakota has benefited from being in the right industries -- agriculture and energy -- at the right time.

So yes, a little bit of luck helps.