There's Something the Matter With Ohio Too

There's Something the Matter With Ohio Too

(Bloomberg View) -- In the wake of the white supremacist march and the killing of a protester in Charlottesville, Virginia, my Bloomberg View colleague Tyler Cowen wrote an excellent piece about how the state is a multicultural success story. Economically thriving, Virginia also is home to a large number of immigrants from all over the world. Those who attack that success are putting themselves on the wrong side of history.

Virginia, of course, benefits from being close to Washington. Other states, such as New York, California, Texas and Illinois, have succeeded economically because of the wealth of huge, diverse cities like New York City, Chicago and Houston. And many sparsely populated states such as North Dakota are prospering mainly because of large endowments of natural resources. Meanwhile, states with none of these natural advantages, such as North Carolina and Minnesota, are making progress by leveraging higher education and technology clusters.

But a few states continue to flounder in the new economic reality. It’s crucial for these states to update their approaches to prosperity. Exhibit #1 is Ohio.

Ohio’s unemployment rate is only one percentage point higher than the national average. But in recent years, the state has created jobs at a slower pace than the nation as a whole:

There's Something the Matter With Ohio Too

Worse, Ohioans are getting paid less for the work they do. Hourly earnings were about the same as the national average before the recession, but have lagged since:

There's Something the Matter With Ohio Too

Many other grim statistics confirm the poor health of Ohio’s economy. The Buckeye State isn’t collapsing, as it did in the early 1980s, but it’s suffering a long, grinding slide into the lower ranks of U.S. states. Meanwhile, Ohio is undergoing social breakdown -- it’s at the center of the national opioid epidemic.

Why is this happening, and what can be done about it? Neither of these questions can be answered with certainty -- no economist knows the whole story of why regions boom and decline. But there are some big things Ohio should be doing differently.

First, Ohio is part of the Rust Belt -- the swath of the Midwest and Northeast that relied on manufacturing, and which has declined as heavy industry’s role in the economy has shrunk. As University of California-Berkeley economist Enrico Moretti has shown, places that rely on old-line manufacturing have suffered economically and socially in recent decades, while centers of the knowledge-based economy -- big cities, tech hubs and college towns -- have thrived.

Ohio Governor John Kasich has worked to change the state’s reputation, declaring his intent to remake the state as part of the “Knowledge Belt.” But that’s going to be hard to do without getting more actual knowledge. According to U.S. Census Bureau estimates, Ohio ranks 37th in terms of the percent of residents with bachelor’s degrees, and 30th in terms of advanced degrees. The state has no flagship public university system to rival the University of Michigan, University of Illinois or University of Wisconsin systems. The state provides comparatively little funding for poor residents to attend college, suggesting a lack of commitment to higher education.

Nor is Ohio getting sufficient talent from overseas. International students fill U.S. graduate schools, immigrant workers staff U.S. tech companies, and the foreign-born start much more than their share of businesses. But when it comes to immigrants, Ohio is a laggard. Of the eight cities with the lowest foreign-born share of population (of the 109 cities measured by the Census Bureau in 2009), four -- Akron, Cleveland, Cincinnati and Toledo -- are in Ohio.

In terms of diversity, too, Ohio stands out for resisting recent demographic trends. In 2013, Ohio’s population was only 1.9 percent Asian, compared with 5.1 percent in Illinois, 4.7 percent in Minnesota, 6.1 percent in Virginia, and 3.1 percent in Pennsylvania. Its Hispanic population percentage is also among the lowest in the nation.

It isn’t clear that diversity causes economic growth (though immigration is certainly important). What’s clear is that when a state succeeds economically, it attracts people of many backgrounds, including new immigrant groups such as Asians and Hispanics. The big cities, tech hubs and college towns that are the engines of prosperity in modern America are, by their very nature, diverse places. A state that has difficulty accepting diversity limits its chances of becoming more prosperous.

This is a risk for Ohio. If the state doesn't do more to appeal to immigrants, fails to adapt to diversity, and allows higher education to lag, the state will never climb out of the doldrums it sank into during the days of the Rust Belt. It will continue to stagger along, nostalgic for the age of old-line manufacturing and slipping down the national economic rankings even as cultural decay takes hold. The state’s strong support for Donald Trump, with his angry anti-immigrant rhetoric and unattainable promises to bring back the vanished days of the old economy, isn't an encouraging sign.

There are, however, some glimmers of hope. In Akron, a small but rapidly increasing flow of immigrants is helping to revitalize the local economy. And Columbus, a relatively diverse city that is home to Ohio State University, is bucking statewide trends with booming employment, increasing population and rising wages.

Ohio is therefore at a critical fork. It can wallow in angry visions of the past, or it can try to follow the Columbus model and lift itself into the ranks of American success stories. The choice should be obvious.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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