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COMMENTARY | Several Midwest cities like Indianapolis are experiencing an economic renaissance. Yet, the region’s inability to attract people threatens long-term prospects.
The stereotype of the Heartland is of a left-behind post-industrial region full of cities with intractable problems. While there’s some truth to that, especially when you look at struggling metros like Gary and Youngstown, it discounts the numerous successes of their neighbors. While these cities may not have the glamour of New York and Los Angeles or the growth rates of some Sunbelt boomtowns, they, nevertheless, belie the notion that the Midwest can’t compete.
Indianapolis is a perfect case study. The city is home to a rapidly growing constellation of startups and frequently listed as a strong second-tier tech center. Big business is knocking at Indianapolis’ door. Salesforce put its second largest U.S. office in the city and the company’s logo now adorns the top of the state’s tallest building. Amazon selected the city as a finalist in its HQ2 competition. And tech service giant Infosys is building a 3,000-person office, which upon completion will be the largest corporate training center in the country.
This low-cost city also happens to be located in a business-friendly state that is ranked 10th for its tax climate by the Tax Foundation. Additionally, Indiana is fiscally solid, AAA-rated and has $2 billion in the bank—positioning it well to navigate any economic downturn. These facts are potent symbols of how this Midwestern city has succeeded in transforming its economy for the 21st century.
Putting the cold and snowy winters aside, this approach features the same winning characteristics of many successful Southern cities. Beyond low costs and taxes, Indianapolis boasts the same downtown apartment boom, farm-to-table restaurants, trendy coffee shops and microbreweries as every other growing city. But it also has truly unique attributes, like its motorsports heritage. The Indianapolis 500 is world-famous, and the Indianapolis Motor Speedway’s recent sale to Roger Penske made global news. Indy is also the capital of drag racing and one of only a handful of global centers of the motorsports industry, with over 400 firms employing about 8,000 people locally, many of them in high-tech jobs.
The city’s recipe of low costs, low taxes and quality amenities is working. The metro area is adding population at a rate almost 1.5 times as fast as the country as a whole, has added nearly 160,000 jobs since 2010, has a per capita GDP that’s 15% higher than the U.S. average and is more educated than the country at large.
Indianapolis is not the only Midwestern success story. Cities like Minneapolis-St. Paul, Fargo, Grand Rapids, Kansas City, Madison, Des Moines and Columbus, Ohio, can make similar boasts. Minneapolis is full of blue-chip corporate headquarters. Columbus is home to the $1 billion Drive Capital venture fund. And the relatively small Fargo area in North Dakota hosts over 1,000 Microsoft employees.
As well as these cities are doing, they continue to have a weakness that limits and threatens their future: luring people from outside the region to fill open jobs. The Midwest is heavily dependent on people moving from their home state or within the region to fill the labor gap. To sustain labor growth, the Midwest needs to draw workers from across the country, but it is not yet a national draw.
Based on my analysis of Internal Revenue Service data, Indianapolis had a net gain of 27,000 people from within the state move to the area from 2010 to 2016. But it experienced a net loss in acquiring new residents from outside of Indiana. The same is true for all these Midwestern stars, according to my recent Manhattan Institute study, “Midwest Success Stories.” In contrast, Sunbelt cities like Nashville and Raleigh draw people from across the nation and hardly rely on migration from within their home state. This might explain why Amazon decided to put its 5,000-person operations HQ in Nashville instead of Indianapolis, even though Indy has a larger population and more tech workers.
Midwest cities need to find a way to become national draws. The winters can’t be changed, but cold-weather Boise is drawing so many people from California it’s causing a backlash. If Idaho can lure people, surely Midwestern cities can too.
How? First, they need to make it easy to move altogether. Implementing regulatory changes like easier transference of out-of-state credentials like occupational licenses can help. Even more important is opening up social networks so that newcomers can make friends and avoid feeling isolated. Indianapolis is already excellent at this, but many Midwestern places aren’t.
These cities also need to sell themselves more aggressively. Unlike Texas with its oversized braggadocio, Midwest cities like Indianapolis have always been modest. They need to learn the art of authentic civic boasting, and create the kind of mythos that Sunbelt cities like Nashville have. They need the same kind of focused effort on attracting newcomers that they do on luring conventions, tourists and new businesses.
The Midwest is more than just the Rust Belt. Cities like Indianapolis need to get serious about attracting people from outside their home state. Their potential is very high, but can only be realized if they are able to expand their draw beyond their own backyard.
Aaron Renn is a contributing editor of City Journal and author of the Manhattan Institute report, “Midwest Success Stories: These 10 Cities Are Blooming, Not Rusting.”