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New method to think about wealth creation

May 12, 2010
Robert D. Koob
Cedar Rapids Gazette
February 9, 2003

Robert D. Koob

Iowa's business leaders are on the right track when they talk about the future growth of Iowa in terms of "wealth creation." This variation on the sometimes vague concept of "economic development" has the potential to appeal to the financial common sense of individual Iowans, as well as transcend the current tension between the desire to hold the line on taxes and Iowa's obvious need for better human services.

If each taxpayer had increased income and buying power, the state would have more to spend on education and the needs of its very young, very old and infirm -- without raising the tax rate. Iowa's gross wealth is the sum of the wealth of its citizens. Quite simply, increase the wealth of Iowans and the wealth of the state of Iowa increases.

One statistically certain way to do this is to raise the educational level of all Iowans. The best-known predictor of a state's wealth is the educational level of its population. This has been true for decades and the 2000 census confirmed it. If all Iowans without high school diplomas could earn them; if all high school graduates obtained some college education; if all those with some college obtained bachelor's degrees and so on, Iowa would be a wealthier state.

Despite decades of predictions of an over-supply of college graduates, the 2001 unemployment rate of those with bachelor's degrees or higher was less than half the national average. College graduates found better ways to do old jobs as well as create new jobs. This phenomenon became well known as "the knowledge economy."

Ironically, despite our state's high quality of education, Iowa has not retained its own graduates or succeeded in attracting college graduates from other states. Of the 50 states, Iowa continues to rank in the mid-thirties in terms of percent of its population with a college degree. It was ranked 35th in the September 2002 Milken Institute report on the state's capacity to participate in the current knowledge economy. So, not surprisingly, Iowa continues to rank in the mid-thirties in per capita state income.

Recent state legislative actions have shifted a significant proportion of the cost of public higher education from the tax base to tuition. Legislative action seems entirely inconsistent with the need to raise the educational level of Iowans and thereby increase Iowa's wealth.
We must stop thinking that we are in competition for a fixed set of resources. This thinking is natural to a state founded on an economy based on a fixed resource: the soil. Real growth, however, is based on ideas, and ideas are an infinite resource. Increased productivity comes from innovative thinking.

The world is much more complex today than a century ago, creating a constant demand for innovation. In the same way that Iowa's early 20th-century boom relied on its rich soil and industrious immigrants, encouraging the growth of knowledge will stimulate a 21st -century boom. Now, however, the "soil" must be a more abstract mix of attitudes and policies that invite innovation. The need for an industrious, creative and well-educated population has not changed.

If new wealth creation is to become a reality in Iowa, Iowa must retain its commitment to education at all levels, and then do one thing more. It must create opportunities for educated people to find attractive jobs here. Iowa's leadership faces the challenge of determining how best to accomplish that.

We, as Iowa citizens, can support their efforts by working to overcome our natural tendencies. Change and uncertainty are uncomfortable, but wealth creation, growth and development are all characterized by change. We all need to work hard to embrace constructive change and fight our natural tendency to resist it.